Should my inheritance be reduced by what my daughter owed my parents?

The complexities involved in distributing an estate continue to challenge both executors and beneficiaries. Even a simple statement such as "divide my estate equally among my children" can end up being complicated by the very real circumstances of our lives.

Recently I blogged about the fact that beneficiaries are often dismayed to find out that the "help" they received from their parents over the years in fact decreases the amount they will inherit. The following note was received from a reader who is in that situation, but with an added wrinkle. Here is the question:

"My father recently passed away. His will states that his estate is divided between 5 children and his common in law wife. I have been told that I will not recieve my full inheritance because I had a loan back in 1995 which my Mom cosigned on and when I moved away she made the payments. She passed away in 1998 so my Dad had to pay off the loan and also that my daughter owed Mom some money so that comes out of my share. The grandchildren are not even in my Dad's will and I don't see why I have to pay for her."

Unfortunately, the money you received by way of that 1995 loan is considered by law to be an advance on your inheritance. This is the case unless the will specifically tells your executor to forgive the loan, or unless you've paid it  back. The executor doesn't have any choice, as he is bound by law to reduce your inheritance by the amount you have already received.

Now the loan to the grand-daughter is another matter. I'm not at all convinced that the loan has anything to do with you. For one thing, the money was owed to your mother and this is your father's estate. For another thing, you are not your daughter. The presumption of advancement which applies to children receiving a gift does not apply to grandchildren. To me, it sounds like a real stretch to try to apply that loan to you.

However, I haven't seen the will and I don't know anything about the terms of the loan to your daughter, so I suppose there could be facts that support this position. For example, the money could actually have been given to you, and you gave it to your daughter.

Unfortunately, families almost never document this kind of arrangement because they don't want to insult anyone. This often results in keeping the feelings intact at the time, but causing much greater hurt down the line.

Grandparents' rights in Alberta

Grandparents' rights have certainly come a long way in parts of Canada. A generation ago there was not much a grandparent could do when they were not able to see grandchildren because of the wishes of the parents. Grandparents often lost touch with precious grandchildren due to divorce and separation that had nothing to do with the grandparents.

This recent story in the Edmonton Journal talks about grandparents' rights to access to their grandchildren, and the changes to Alberta law that protect those rights. Click here to read it.

Are "in trust for" bank accounts really trusts?

Many parents and grandparents set up accounts at a bank to save money for their child or grandchild. They set up the accounts as being "in trust for" (or, ITF) the child or grandchild. These accounts are popular, largely because the set-up is so simple. The idea is that the parent or grandparent puts money in the account, which grows until the child or grandchild reaches the age of majority and receives the funds.

But are these accounts really trusts? And if they are, what does that mean for the parent or grandparent who contributes the money? And what does it mean for the child?

Yes, these accounts are trusts. They may not seem like it, given that there is no deed, will or other document drawn up by a lawyer. Because of this, ITF accounts are known as informal trusts, but they are still trusts.

The basic nature of a trust is that money is held by a trustee (in this case the parent or grandparent) on behalf of a beneficiary (in this case a child or grandchild). Because it's a trust, the money can only be used for the beneficiary. The trustee has a legal obligation to do this. The trust is irrevocable, meaning that the contributing parent or grandparent can't change his or her mind after the account is set up and take the money back out for their own use.

If the child named as the beneficiary reaches the age of majority, he or she will receive the full amount of the funds and any interest earned on the funds. If the child doesn't reach the age of majority, the funds in the ITF account do NOT automatically go back to the parent or grandparent. The funds fall into the child's estate. Odds are good that the child won't have a will, since he or she is under the age of majority. In that case, the funds would be distributed according to the law of intestacy in the province where the child or grandchild lives.

As an example, Ian's grandmother sets up an ITF account for Ian to receive when he turns 18 years old. Unfortunately Ian is killed in an accident when he is 16 years old. He doesn't have a will. The ITF account becomes part of Ian's estate, which according to the law of intestacy goes to his parents. The parents receive the ITF funds.

Make sure you mention any ITF accounts you've set up for your children or grandchildren when  you meet with your estate-planning lawyer.

Who qualifies as a grandchild or great-grandchild under a will?

Check your will. Does it say that some part of your estate is to be left to your grandchildren or great-grandchildren? If so, is it your wish that the estate be shared with step-grandchildren, or just among those who are blood relations? It might be clear to you just who you intend to benefit, but perhaps it's not so clear to others who have to rely on your will for instructions.

Megan Connolly, a Toronto lawyer, has analyzed the recent Lang Estate case from BC, in which the court made a decision about who qualified as a grandchild under a will. Click here to read Ms. Connolly's post.

Do you know someone raising a grandchild?

I received this notice today from the National Initiative for Care of the Elderly:


May 26, 2011 
CANGRANDS Community Information
Do you know of someone who is raising a grandchild, niece or nephew? Or perhaps they are denied access to a grandchild?
In Ontario some 22,000 children are living full time with kinship caregivers (usually a grandparent).

CANGRANDS has 25 kinship chapters to support you; as well, we are looking for folks to start up new local kinship chapters. KINSHIP support is only an email or call away.
If you could sponsor a kinship family to attend camp or help with an auction item please let me know asp.

CANGRANDS NATIONAL KINSHIP SUPPORT http://www.cangrands.com/ 2580 Hartsmere Road
McArthurs Mills Ontario K0L 2M0 Betty Cornelius grandma@cangrands.com or
613-474-0035 or cell 613-334-4255

"When the Wisdom of the Grandmothers is Heard the World will Heal."
--Native American Prophecy

National Initiative for the Care of the Elderly (NICE) Initiative nationale pour le soin des personnes âgées (INSPA)
222 College St., Suite 106
Toronto, Ontario M5T 3J1 Canada
Phone: 416-978-0545 Fax: 416-978-4771
http://www.nicenet.ca/

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.

How can I prevent step-grandchildren from inheriting?

The question of making sure that step-grandchildren don't inherit a portion of a grandparent's estate comes up more frequently than you might think. Occasionally a client will preface the question with a remark like "I don't want to sound mean, but...", which I think is totally unnecessary. It's your hard-earned money so why should you feel bad about deciding who gets it - and who doesn't - after you're gone?

Grandparents often, but of course not always, feel differently about step-grandchildren than they do about their child's biological and adopted children. They tell me they feel less of a connection with the step-grandchildren. Although they acknowledge the step-grandchildren as a part of their children's lives, they don't always think of them as a part of their own lives. Many explain this by saying "they aren't my own flesh and blood".

This sentiment is very relevant for a grandparent who is preparing a will. In a typical family, spouses leave their estates to each other, and when the spouse has deceased, the estate is divided among the children. This isn't necessarily the law, but it is by far the most common and expected arrangement.

So the grandparent makes a will leaving everything among his or her children. The lawyer will then ask what should happen if one of the children should die before the grandparent. The most common and traditional arrangement is that the deceased child's children (the grandchildren of the testator) will divide the deceased person's share. (Now you see why I draw so many diagrams and family trees in meetings with clients!)

This is the point at which the grandparent asks about the step-grandchildren. These days, blended families are more common than the traditional nuclear family, so the grandparent is absolutely right to clarify who is in the group of "the deceased child's children" and who is not. The idea is not to punish a step-grandchild in any way. The goal is to leave as much as possible to the grandparent's own blood relatives. The secondary goal is to make it clear to anyone reading the will exactly what the grandparent intended so that there are no arguments or misunderstandings.

The grandparent who wants to exclude step-grandchildren is aided by law. Much of the law of inheritance is based on the concept of bloodlines. Therefore, a child or grandchild who is not related by blood (or adopted) is not normally automatically included as a beneficiary. If you want to know exactly what the law says in your province or territory, you should sit down with an experienced estate lawyer in your area. That way you can obtain specific advice rather than general information.

Grandparents often like to solidify and clarify this default position by specifically including a clause that defines who is meant by the word "grandchild" in their wills. It's a simple matter of a few words to explain who is meant to be included and who is not, and it may save the grandparent's estate from being embroiled in a dispute.

This works the other way too, of course. If you, as a grandparent, want to make sure that your step-grandchildren are included in your estate, you should make sure that is specifically set out in your will.

New blog for grandparents

I'm attaching a link to a new blog designed especially for grandparents who are raising their grandchildren. It looks as if it could develop into an excellent source of information and support. Click here to see it.

If my child dies before me, does my son or daughter in law get their share?

Estate planning lawyers ask a lot of "what if?" questions. One of the questions we ask parents who are leaving their estates to their children is what they would like to see happen to a child's share if that child should die before they do. I know nobody wants to think about this, but it's an important question for the proper set-up of the Will.

I've noticed that there is some misunderstanding out there about what will happen with a child's share in this circumstance. Many people assume that the child's share will automatically go to the child's spouse (the son or daughter in law). Others assume that there is some obligation on them to leave something to the son or daughter in law. Neither of those things is true.

Inheritances generally follow the family's bloodlines. This means that if you do not leave a Will, your estate is divided among your spouse and your issue - that is, your direct descendants in your bloodline. Nothing goes automatically to anyone who is married to your issue.

When parents make Wills, they generally state that the estate is to be divided among their children, and that if one of the children should die before them, the deceased child's share is to be divided among that child's children (the parents' grandchildren). As a side note here, if you want to include grandchildren, insist that your lawyer not use the word "issue", which means all following generations.

It's unusual that parents want to leave a deceased child's share to that child's spouse, but it isn't unheard-of. In the case of longstanding marriages, in particular, the parents may want to leave some or all of the child's share to the spouse. It's always the client's choice. In cases like that, I recommend that the gift be made to the son or daughter in law only if he or she was married to and living with the parents' child at the time of the child's death. That eliminates shares going to spouses who are separated or getting divorced.

You can't leave a gift of money to your child on the condition that he or she doesn't share it with his or her spouse. Once you've given the money away, you have no say in what the beneficiary does with it. Also, you can't leave money to your child on the condition that he or she doesn't marry someone you don't like. If you are in a quandary about what to do regarding a child's share, talk to an experienced estate planning lawyer to get some ideas and find out the facts.