Widow owes rejected adopted daughter millions, court says

Here's an interesting story with a happy ending. A wealthy couple from New York adopted a child. The father made a will sharing his $250million estate between his biological and adopted children. A few years after the father died, his widow basically gave the child back, and in fact the child was adopted by someone else.

Eventually it came to light that had the child not been "returned" by the widow, the child would have inherited millions of dollars from her first adoptive father. The new parents sued on behalf of the child and eventually the court ruled that the father intended this adopted child to share in the estate. He couldn't have foreseen that after he died, his wife would try to un-adopt the child.

To read about this story in more detail, click here to see an article from yahoo.com.

This is a really interesting precedent from a legal point of view. Usually the law is pretty clear that when someone is adopted, they are for all legal purposes the child of the adopting parents and are no longer connected to the original parents. If that rule were strictly followed here, it would mean that the child, being adopted by a second couple, would no longer have any entitlement to the estate of her first adoptive parents.

However, I completely agree with the court's findings in these very unusual circumstances. Circumstances changed after the father's death in a way that he could not have foreseen. Dickens himself couldn't have come up with a more heart-wrenching plot.

What happens if there is a will but no executor?

It's possible to pass away leaving a valid will, but still not have an executor. The person you named as executor could have passed away before you, or lost mental capacity, or simply refused to be your executor. This might create a situation where the will sets out everything the way you want it to go, but there is nobody to take charge and carry out your instructions.

You probably know that if you hadn't left a will at all, and you had assets that need to be dealt with, someone would apply to the court to become your administrator (as opposed to executor). The process is much the same when there is a will with no executor. Someone would have to come forward and apply to the court to be your administrator, but they would also have to give the court your will. It's a cross between an application for probate and an application for Letters of Administration.

If the deceased has made a will, it's important for someone to bring it to the court to carry out the deceased's wishes. There could be gifts of specific items or property in the will. The distribution of the estate might not be the same as it would be under the intestacy (i.e. no will) rules. Wills generally include additional instructions for things like loans made to children during the deceased's lifetime, shares in a family company or dealing with the cottage.

The rules about who has the right to make this application are set out in each province. Assuming that the named executor is out of the picture for the reasons mentioned above, the person with the right to apply to the court is probably a residuary beneficiary of the estate as set out under the will.

An executor's authority to take control of a deceased's assets arises from the will. If there is a will but no executor, nobody has a right to control the deceased's assets until the court appoints him or her. Once the appointment has been made, the administrator's job is much the same as an executor's.

Refuse to pass accounts? Off to jail with you

This new case from Ontario should make out-of-control executors think twice about their refusal to conduct the estate properly. In Walling v. Walling, the beneficiaries of an estate got tired of trying to get the estate executor to deal with the estate and his refusal to account for what he'd done so far.  They applied to the court for help, and the court ordered the executor to pass his accounts, and fined him $1,000. He still didn't pass them so he was fined again for $1,500. By this time the judges were sick of him too so when he still failed to pass his accounts, he was put in jail for 7 days for contempt of court, and ordered to pay costs of $2,000.

Obviously I don't know why this executor refused to pass his accounts. But whatever the reason, I hope it was worth $4,500 and a week in jail. So far.

Read the full case here.

What does an executor do if a beneficiary doesn't want his inheritance?

A while ago, I blogged about whether or not a beneficiary could turn down an inheritance (which he can). Click here to read that post. That's fine from the beneficiary's point of view, but what if you're the executor? What are the logistics of probating and administering an estate when a beneficiary just doesn't want what was left to him under the Will?

In most of the cases I've seen, a beneficiary who turns down an inheritance is doing so "in favour of" another person. For example, a woman with a husband and children died without a Will. Instead of dividing up the estate among the husband and children as the law dictated, all of the kids agreed that they would rather their father have the mother's estate. Each of those children turned down the inheritance, but only did so on the understanding that their father would get their share. They didn't want one of the siblings or a charity or the government or anyone else to have their share.

In this case, the application for the court (in this case an Application for a Grant of Administration) was prepared just as the law said that it should. The schedule of beneficiaries asked who was entitled to receive the shares of the estate and we described the husband and the children as those entitled to them. In other words, on the face of the documents, there was no indication that the children might turn it down.

We had each of the children sign an Assignment of their share. This means that each of them asked the administrator of the estate to pay their share to their father rather than to them. The Assignments were signed and witnessed. Each child was required to see a lawyer of his or her own to make sure that they knew what they were signing. When the estate was ready to be paid out, the Assignments were followed and the entire estate went to the father.

Occasionally there will be an estate where a beneficiary doesn't want to receive his or her share but won't co-operate by signing anything. That of course is someone who is trying to make a point! If the executor or administrator doesn't know where that person lives or cannot get payment to them, he might end up going to court to ask a judge for permission to pay the inheritance somewhere else. That could be to the Public Trustee or to another beneficiary.

The executor or administrator shouldn't pay someone's inheritance to another person or organization without either a written Assignment or an order of the court.

What if a beneficiary won't sign the Release?

An executor emailed me recently, asking what to do if a beneficiary won't sign the Release. I don't know the facts of the case, but this appears to refer to the Release document that is given to the beneficiary for signing at the end of an estate, accompanied by financial documents that explain what the executor has done with estate assets and liabilities and how he intends to distribute the estate. If the beneficiary signs the Release, it means that he or she approves of the financial accounting provided and will not be able to come back against the executor in the future about anything covered by the accounting.

When one beneficiary doesn't sign his or her Release, it means that  none of the beneficiaries can receive their inheritance.

If a beneficiary were to refuse to sign the Release, I would want to know why. Is there an objection to the contents of the financial documents? Is something missing? Does the beneficiary understand that he or she won't get any money until the accounting is approved (either by the beneficiaries or by the court)? Does the beneficiary object to the compensation the executor is requesting?

If you can find out where the objection lies, you can most likely address it. In many cases, a refusal like this is actually a request for more information. For example, say a beneficiary wants to know why the house sold for $450,000, but only $420,000 shows in the bank account. The executor could show the calculation that showed how much of the $450,000 was spent on realtor's commission, legal fees and payment of taxes. The executor could show the cancelled cheques for those expenditures. Perhaps the executor didn't do a very good job of setting out the numbers, or backing them up with receipts or statements.

Many executors who are acting without lawyers or accountants tend to give an "accounting" that is little more than the current bank balance, without explanation of what happened to investments, RRSPs, the deceased's car, etc. If that's what the executor is presenting, he or she shouldn't be surprised at the beneficiary not signing the Release. I wouldn't sign it either.

If the beneficiary is objecting to the amount of compensation that the executor is requesting, the executor might provide a breakdown of how he or she arrived at that number. The breakdown might include the number of hours the executor put in, the number of kilometres driven, or a list of all of the tasks that the executor had to take care of (this is one reason why executors are always advised to keep a diary or journal of all of their actions on behalf of an estate).

If the issue is compensation and a more detailed accounting isn't persuasive, the executor and the beneficiary may negotiate a different amount that satisfies both of them. If that doesn't work, the executor will have to ask the courts to set the compensation by court order. This takes longer and the beneficiaries get even less because the executor's lawyer is paid from the estate, but at least the issue can be resolved.

It's unusual for a beneficiary to simply dig in his or her heels and refuse to sign the Release without giving a reason or stating an objection, but it can happen. In the end, the executor will give up on asking for information that isn't forthcoming, and will ask a judge to approve the accounting.

The effect of court order on an Enduring Power of Attorney

At my recent seminars, I was asked several questions about the workings of Enduring Powers of Attorney (EPAs). A number of questions were based on revocation of an EPA, and a few were about whether an EPA is affected by a court-ordered trusteeship.

One of the reasons individuals make EPAs is to prevent the need for a trustee to be appointed should the individual lose mental capacity. The individual wants to maintain control over important decisions such as who will be appointed as Attorney, and to set some guidelines for the Attorney's actions. In the vast majority of cases, this works as it was supposed to.

Occasionally, even when there is an EPA in existence, there is still a need for a court-appointed trustee. For example, this could happen when the appointed Attorney passes away and the EPA doesn't name an alternate. It could happen when the court removes an Attorney and there is no alternate named, or the alternate isn't willing to act. It could also happen if the EPA itself is invalid or inadequate for the situation.

If the court appoints a trustee, that appointment supersedes any EPA that is in existence. If the EPA has been used at banks or other places, a copy of the court order appointing the trustee should be sent to each one, with clear instructions that the order replaces the EPA.

I posted earlier on revoking an EPA (in a situation other than using a court order) and if you'd like to read that post, click here.

What happens if the beneficiary of an estate has dementia?

I find it interesting to talk to executors of estates when money or valuables are left to an elderly person who has Alzheimer's disease or other dementia. The executors' attitude is sometimes along the lines that the elderly beneficiary won't know or realize that he or she has inherited something, and certainly won't spend it, so why bother giving it to them. The executor then wonders if the elderly beneficiary's gift should be given to someone else who will appreciate it.

This goes completely against logic for me. The elderly person with dementia that prevents him or her from looking after finances is exactly the person I'd think an executor would want to protect.

I've talked in a few posts about the executor's role and the fact that the executor can't simply decide not to pay an inheritance to a beneficiary for his or her own reasons, so I won't discuss that again right now. I would like to talk about the logistics of paying an inheritance to a person with dementia.

Assuming that the beneficiary is elder and that the existence of dementia is not a question, then there is quite likely someone legally appointed to help with their finances. The first thing to look for is whether anyone under is acting under an Enduring Power of Attorney. If so, the executor can send the beneficiary's inheritance to the person acting under the Power of Attorney, to be looked after on behalf of the beneficiary.

If the elderly person with dementia did not appoint anyone under an Enduring Power of Attorney, and is disabled to the point where he or she cannot deal with an inheritance, then it is highly unlikely that he or she can still sign an Enduring Power of Attorney. In this case, the next option is to have someone appointed by the court to act as legal Trustee for the beneficiary.

Trustees are most often family members, but sometimes it happens that the elderly beneficiary will have no relatives available to do this job. Perhaps the person who left the beneficiary the inheritance in question was the last living relative. In that case, a trust company or the Public Trustee could be appointed by the courts as a trustee. The executor is perfectly within his or her rights to make a telephone call to a trust company or the Public Trustee to ask for help in determining whether he or she should pay the inheritance not to the beneficiary but to a representative for the beneficiary.

Many executors in this situation will take the attitude that going through court-appointed trustees is just too much trouble, and will simply write a cheque and deposit it into the elderly beneficiary's bank account. This solves the issue of moving the money out of the estate and into the hands of the beneficiary. However, it doesn't do anything to protect the elderly person who just inherited the money, either from strangers or from other beneficiaries who are aware that the elderly person now has money but can't manage it due to dementia.

If the executor deposits the money and doesn't have a signed Release from a person acting under an Enduring Power of Attorney or court Order, there is a risk. A beneficiary or family member of the elderly beneficiary may later realize that there was an inheritance, and if the money is no longer in the elderly beneficiary's account (either because it was dissipated or because someone scammed it from the elderly person) then the executor is going to be in a tough position. The executor can be held personally liable for a beneficiary's inheritance if he or she can't prove that it was paid to the proper person.

As an executor, take a cautious approach and ask questions as you go. You should have a legal advisor if you are faced with unusual difficulties such as an incapacitated beneficiary, both to protect the beneficiary and to protect yourself.

Can I open an estate account if there is no Will?

If a person passes away without a valid Will, and there are assets and debts to be dealt with, someone must apply to the Court to be appointed as Adminstrator of the Estate. As you can imagine, it takes a while for the family to search for a Will, conclude there isn't one, see a lawyer and bring an application to court.

The weeks or months that pass between the deceased's death and the appointment of an Administrator can be frustrating for the person waiting for the Court Order. There will be pressure from creditors for bills to be paid. There will be a funeral that must be paid for. There may be money arriving from pensions or investments or employment. And of course there will be beneficiaries wanting the estate to move along more quickly.

This set of circumstances may lead the person waiting to be appointed as Administrator in a really difficult position. He or she may be willing and ready to work on the estate, but cannot do anything without the Court authority. If there was no Will and there has been no Grant of Administration, then the would-be Administrator has absolutely no legal authority to spend, deposit, invest or do anything else with the deceased's money.

This means that the Administrator could not open an estate account before being appointed by the Court by a Grant of Administration.

If there were a Will in place naming someone as executor, that would be a completely different story.

While waiting for a Grant of Administration to be issued by the Court, the deceased's next of kin who arranged the funeral may submit the funeral bill (and some other bills) directly to the bank where the deceased had an account. Assuming there is enough money in the deceased's account, the bank will pay the funeral bill directly, without the money ever passing through the hands of the would-be Administrator.

Once the Court has issued the Grant of Adminstration, the administrator can do everything an executor could do, including opening an estate account to deal with the deceased's money.

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

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

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

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

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

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

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

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

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

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

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

If the executor won't apply for probate, is there anything you can do?

It's the job of the executor(s) named in the Will to apply to the court for a Grant of Probate of the Will. Sometimes, however, the executor refuses to do so, and also refuses to renounce. Usually this is due to family politics, or the fact that the executor stands to lose some benefit once the estate is distributed.

This leaves the estate at a standstill, and beneficiaries waiting around. Usually this is followed by a breakdown in family harmony. While executors have a right to apply for probate, they have to remember that beneficiaries have rights too. The executor has a legal responsibility to administer and distribute the estate.

If an executor has a legitimate reason for the delay, he or she should communicate that to the beneficiaries and keep them up to date on the progress of the matter. Even a legitimate reason eventually runs out. For example, if the executor is ill and cannot work on the estate right away, no doubt the beneficiaries would be patient and allow him or her time to recover. However, if it becomes apparent that the recovery is going to take years, it would be better for the estate if someone else took over as executor.

Communication is very important on an estate. It could be that the executor is managing to deal with the estate without applying for probate, and that things are actually further along than the beneficiary realizes. In that case, the executor needs to keep the beneficiaries informed. Most executors don't actually understand that the residuary beneficiaries of an estate do have a legal right to be informed about what's happening with the assets.

So what can a beneficiary do in a case where there is no legitimate reason for the delay, and the executor just flat out refuses to apply for probate?

Provincial laws allow "any interested person" to apply to the court for directions on an estate.

The phrase "interested person" has a legal meaning, and doesn't just refer to anyone who finds the estate interesting. It means a person who has a legal stake in the estate, in other words the beneficiaries or creditors of an estate, or someone who wants to bring a claim such as a spouse who is left out of the Will.

When you make an application for "directions", you are basically telling the court what's happening (or not happening) and asking for the court's advice and direction on how to deal with it. The court has quite a bit of power to make pretty much any order that it thinks is reasonable and fair in the circumstances. For example, the court might direct that you or another beneficiary should bring an application for probate, or that the executor apply within a certain number of days. There could be other orders as well, if there are assets that are in danger or minor children living without financial support. Don't forget that the court will hear the executor's side of the story as well.

You will definitely need the help of an experienced estates lawyer to make this application successfully.

Does every Will have to be probated?

This is one of those questions that I am asked over and over again, so I thought I'd mention it here. The short answer to the question is "no", but that doesn't tell the whole story.

Probate is not needed to transfer certain kinds of assets. Specifically, you do not need probate to transfer property that is held in joint names. This is because joint ownership carries with it a right of survivorship of the other owner(s). For example, if a husband and wife own their home jointly and the wife passes away, the husband owns the house by right of survivorship and doesn't need probate to put the title in his name alone. Take note that this rule does not necessarily apply to assets that were jointly owned by the deceased and his or her children.

You also do not need probate to transfer assets that have a named beneficiary. These assets include RRSPs, RRIFs, life insurance policies, pensions and some other assets. When the owner of the asset passes away, you only need to provide a Death Certificate and some information in order to transfer that asset to the person who is named.

Because of these rules, it's quite possible, and in fact is the norm, that a husband and wife can set up their financial affairs using joint property and beneficiary designations so that when one of them dies, the other one does not need to go through probate.

For anyone who is not in that situation, and whose assets are not all going to pass to someone automatically due to joint tenancy or beneficiary designation, the question of whether probate is needed is going to depend at least partly on the type of asset they own.

If you own real estate in your own name alone, or if you own it as a tenant-in-common, your executor will need a Grant of Probate to transfer or sell your property.

If you have assets that will form part of your estate after you die, such as life insurance policies and RRSPs that name your estate as beneficiary, your Executor will need to get probate. This also applies to any assets held in your name alone, such as a bank account, investment, or expensive personal items (e.g. art collection).

If you have a significant amount of money in your estate, your Executor will need probate before he or she can gain access to it.

There are other, less common, reasons why executors must go through probate. For example, the executor might have to finish litigating a lawsuit on behalf of the deceased. There could be a dependent who wants to make a claim against the estate. There could be some question about whether the Will itself is valid or some of its terms might need to be clarified.

It's sometimes hard to tell right at the beginning of an estate whether or not you need to go through the probate process. Sometimes the only way to know for sure is to take the Will to an experienced lawyer, together with information about the deceased person and his or her assets, and ask for an opinion.

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How to use a court order that appoints you as a trustee for an adult

Most people who are appointed by the courts as a trustee for an adult person enlist the help of a lawyer to make the court application and get the Order that appoints them. This is commonly done where a parent is losing mental capacity and has not prepared an Enduring Power of Attorney. But once you've got the court Order in place, are you confident that you know how to use the Order properly? Here are some tips for getting started as a court-ordered trustee:

1. File the Order at the court. If you used a lawyer, this will be done as part of the service you pay for.

2. Read the Order to find out when it comes into effect. If no date is specifically stated on the Order, you can assume it comes into effect on the day the judge signed it.

3. Read the Order to find out if there are any deadlines you have to meet, such as dates for renewing your application or reporting to the court about your activities as trustee.

4. Serve copies of the Order on anyone who is by law entitled to be served. Again, if you used a lawyer this might have been done. Make sure you ask whether the lawyer has done this.

5. In many parts of Canada, a newly-appointed trustee has to file an inventory of the assets and liabilities of the person for whom they are acting as trustee. There is usually a 6-month period allowed for this to be done.

6. Talk to each place of business at which you will be representing the person for whom you act as trustee. The places of business might include banks, investment houses, property tax departments, Canada Revenue Agency, land titles office etc. Find out whether you have to give them a notarial copy (stamped by a notary public) or a certified copy (stamped by a clerk of the court) of the Order that appoints you. Never give any of them the original court Order.

7. Read the provincial or territorial act that governs your Order so that you know what you are supposed to do, and what you are not supposed to do. Many well-intentioned trustees get into legal trouble by accidentally exceeding their legal authority.

8. Set up your record-keeping in a way that you can and will sustain over a long period of time.

These tips are summarized from Chapter 14 of my book called "Protect Your Elderly Parents", which gives quite a bit of detail of each of these steps. The book explains how to set up your record keeping and reconcile your accounts. It tells you who needs to be served with copies of the Order in each province and territory. It shows you exactly how to set up your inventory, what to include and how to arrive at the right monetary values.

Even if you have used a lawyer to get your court Order, a book like this one gives you plenty of help understanding what to do once the lawyer's part of the work is complete and you are on your own to act as trustee.