More on RESPs

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

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

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

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

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

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

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

 

How to leave an inheritance to someone on ODSP

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

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

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

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

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

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

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

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

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

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

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

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

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

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