Why an Executor Should Hire an Accountant at the Earliest Opportunity

Date: 01 Sep, 2022

An Estate Should Hire an Accountant Sooner Rather Than Later.

I take this opportunity to draw once again on the wealth of knowledge and assistance that I receive from Ms. Estelle Weiler CPA, CA, CEA (Certified Executor Advisor) of Calvin G Vickery CPA Professional Corporation. She is my go-to person for any Estate tax related questions and I am not the only Wills and Estates lawyer to rely on her.

I recreate with her kind permission a recent email exchange between us. In it I covered why I had correctly for some time urged my Estate Trustee (Executor) clients to hire an accountant as soon as possible and why at times my client’s receive the wrong advice. My incorrect assumption about the GRE is a faux pas I readily admit. For more information on what a GRE is see our blog titled A TAX PRIMER FOR ESTATES.

I had wrongly assumed one had to elect to take advantage of the GRE within 6 months of death. Estelle responded as follows.

I have also confirmed with CRA that even if you file an estate tax return many years late, you will always be able to elect it as a GRE for the first 36 months of the estate that you file estate tax returns for. So the accountants win on that front.

Personally though, I like being notified and being involved soon after death. I like to send an authorization request with CRA early so that I will have online access to the CRA account of the deceased when I prepare the tax return later – you can find out a whole lot more when you have online access and there is more to preparing a terminal return than just gathering slips. Authorizations for deceased individuals can take months for CRA to process. Some other information, like anything to do with details of a 1994 capital gain election, has to be requested from CRA and they will send it to you by mail. So if you wait until tax season you may not get authorized in time and you may be missing important tax information when you prepare the return. So I do not like it when estate clients wait until tax season for the first contact. “No rush, see me next year” sounds a bit too relaxed to me.

So, I think your advice to retain an accountant early on is great advice, it is just the reason you give for doing so that has to change.

Can a Power of Attorney be used for entering into a Trust Agreement including the Fully Monty Pt 2

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Date: 21 Jun, 2022

In another blog article we reviewed the unhappy fact situation set out in the Selkirk case

The court examined the law on whether or not individuals using a Power of Attorney can enter into a Trust Agreement on behalf of the donor of the Power of Attorney. There were three competing decisions across Canada. However, the theme of those three decisions is exactly in accordance with our firm’s own practice. An attorney can only do those things that are in strict accordance with the terms of an existing Will and as such are not creating a testamentary document, (usually a will).  In plain English, you cannot use a Power of Attorney to write a person’s Will. This is both prohibited under the common law i.e. judge-made law and under the provisions of The Substitute Decisions Act.

But you can create a Trust such as the ones we commonly do under the Full Monty using the Power of Attorney if it is completely in accordance with the Terms of an existing will.  You can facilitate the terms of the will, but you cannot change its terms or effect.

TRUSTS AS A MEANS OF SKIPPING PROBATE and USING A POWER OF ATTORNEY TO SIGN ON BEHALF A MENTALLY INCOMPETENT PARENT

TRUSTS AS A MEANS OF SKIPPING PROBATE
Date: 17 Jun, 2022

At our law firm we have devoted a fair amount of time to perfecting our strategy to avoid or eliminate probate. We have called that strategy the “Full Monty” and it is explained elsewhere on this website.

Learn More : A Strategy To Reduce Or Eliminate Probate Fees – Fully Monty

Learn More : The Full Monty

In the May 2, 2022 decision of Madame Justice Sally Gomery of the Ontario Superior Court of Justice she explored this issue.

Sheila Selkirk died and left behind a set of dysfunctional children. What should have been resolved over a cup of coffee instead became a long winding road of disharmony, distrust and division.

Some interesting and novel legal arguments were made, but quite frankly from this observer’s perspective, the position being taken by the unhappy beneficiary siblings was a loser from the very start.

However, the case does stand for the proposition that properly appointed attorneys under a Power of Attorney for property can enter into a trust declaration for property owned by a mentally incompetent donor. That is more fully explored in our Blog titled  – Can a Power of Attorney be used for entering into a Trust agreement including the Fully Monty.  That is more fully explored in our Blog titled – Can a Power of Attorney be used for entering into a Trust agreement including the Fully Monty

Let’s break this down into a concrete example such as in Selkirk so that one can understand this legal mumbo-jumbo. We have a widow who owns a house and she has a number of children. She already has a Will in which while she largely divides her estate equally amongst her children, but she wants a loan made to one of the children to be repaid before they get their share. The mother told a few of her children that she wanted to avoid probate and its expenses.  However the mother lost her mental capacity shortly before she died and was not able to sign anything.

The brothers went to see their lawyer who prepared a Trust Agreement. The Trust Agreement unfortunately was far briefer and less detailed than the document that our office prepares. The Trust Agreement simply indicated that two children were to be added as joint tenant owners of the home in addition to the ailing mother. The brothers using the Power of Attorney granted to them signed on behalf of their ailing mother. The trust declaration simply indicated that their mother remained the sole beneficial owner, but did not say what was to happen upon her death.

The unhappy beneficiaries after mom died tried to argue that she had explained and promised to all that when she died she wanted her house sold and the net proceeds simply divided equally amongst all of the children.

This argument was doomed to fail from the begin.  Nothing was in writing, the Will was not changed nor could the mother’s existing Will have been changed at this stage of her life.

The case is littered with terrible cross allegations between the siblings of theft and other misdeeds and one cannot but help be saddened and shake their head over a family torn apart over a modest amount of money. The house in question upon sale only realized $326,000.  Divided among six people, this is hardly life-changing. On the other hand, it does provide an interesting factual backdrop, but at what emotional expense.

WHAT DO YOU DO WHEN YOU CANNOT FIND THE ORIGINAL WILL?

Date: 09 Jun, 2022

All is not necessarily lost. There are circumstances where an unsigned copy or photocopy of a signed Will can be located. However, after searching high and low the original is nowhere to be found.

A court does have the ability to fix the situation. A specific remedy is set out in Rule 75.02 of the Rules of Civil Procedure. A person attempting to have the copy proven to be the original would need to make an application. That application is usually supported by written evidence in the form of a detailed Affidavit. In the Affidavit, which of course is subject to attack by those of a different view, the following evidence must be put forward:

  1. Why can the original Will not be found, and specifically what efforts have been made to locate it?
  2. Proving that the testator i.e. the willmaker never meant to revoke or cancel the Will such as by tearing it up and that is the reason it that cannot be found.
  3. Explaining in as much detail as possible why the copy being proposed as the original Will is indeed the last Will of the testator aka the will maker.

If the copy one is attempting to prove as the original Will is being objected to by any other person having a financial interest in the estate, clearly the evidentiary level of proof will rise significantly.

That is why many law firms including our own offer storage of one’s Will as a free additional service to the preparation of the documents. All of our Wills, and this goes for most lawyers, are kept in a central fireproof location indexed with controls for the release and retention of these documents.

ATTACKING A WILL – A HISTORY OF MENTAL ILLNESS IS NOT A GUARANTEE OF SUCCESS – PART 2

Date: 27 Apr, 2022

Coming Soon

ATTACKING A WILL – A HISTORY OF MENTAL ILLNESS IS NOT A GUARANTEE OF SUCCESS – PART 1

Date: 27 Apr, 2022

Part 1

The Ontario Court of Appeal in Leonard v. Zychowicz, a decision released in March of 2022 outlined the cost and difficulty of successfully attacking a Will.

As an example of the incredible expense and time involved in such an attack, this was an appeal decided two years after the original final order (made after the hearing of an application), which in turn took place approximately nine years after the death of the person making the Will, the “Willmaker”.

The Willmaker had in 2002 named her niece Ms. Leonard as the sole executor and beneficiary. Some five years later she made a new Will removing Ms. Leonard and replacing her with another niece Ms. Zychowicz. The appeal was an uphill battle. The decisions of trial judges are generally given great deference by the appeal court. The trial judge needed to have made a palpable overriding error in the assessment of the evidence, ie she really screwed up on the evidence. This is the test if the decision was based upon a set of facts or a mix set of facts and law. On the other hand where there is an error in principle, such as the trial judge failing to consider all of the parts of the relevant legal test, then the Court of Appeal is entitled to substitute their own decision.

The Court of Appeal held that the application judge made no errors, had correctly assessed the law and the test at hand. Also the evidence fully supported the application judge’s decision.

By way of explanation, an application versus a trial is reflective of the kind of evidence put before the court to make a decision. An application generally but not always lacks hearing live evidence. Evidence before the court is usually submitted only in the form of written affidavits.

The case was also one of dueling experts. Both parties put forward highly regarded geriatric experts who render after-the-fact opinions upon the Willmaker having the appropriate capacity to make a Will. On behalf of the challenging niece, we had Dr. Shulman who has an extremely high-profile in this area. On the opposing side, we had Dr. Pachet on behalf of the Respondent Zychowicz.

Dr. Shulman’s opinion was fatedly flawed as it was based upon a set of facts put before him by Leonard’s lawyer. The position of Zychowicz that the Willmaker certainly knew what she was doing when she made a change to her Will was supported by a great deal of external evidence, including the lawyer who drafted the new Will. It is important to note that this long drawn-out matter involved a cost order that may very well be simply a token. While the cost order was $75,000, this author has no doubt that the costs were far greater. This estate was worth only $500,000 in total. While not a pittance, the legal fees between the two parties had to easily have approached $200,000.

The Court of Appeal as is its habit, granted relatively modest costs. They ordered the loser to pay the winner $15,000, including of disbursements and taxes. Again the true legal fees of both parties had to have been at least $50,000.00.

We will look closer at the law in Part 2 of this Blog.

REMOVING AN EXECUTOR AKA AN ESTATE TRUSTEE

Date: 27 Apr, 2022

Removing an executor also known as an estate trustee is a difficult mountain to climb and we have touched upon the law surrounding that issue in other blog articles. I refer one to our recent blog article on Walters v. Walters titled An Absolute Discretion. This website also features two other blog articles titled Applying to Remove an Estate Trustee.

The Superior Court of Justice in Clayton v. Clayton, a August 2021 decision of the Honourable Madam Justice Sylvia Corthorn reviewed this sensitive issue. This case featured a family patriarch dying in 2002 leaving an estate valued at over eight million dollars.

The Will contained the usual terms of granting the executors an absolute discretion on administering the estate, at other times described as an unfettered discretion. To the average person, that would be interpreted as being a blank cheque permitting the estate trustees to act without any review or second-guessing.

The fact situation if one reads between the lines is a husband and wife with three children. The father was quite successful financially, which accounted for the significant estate that he left behind.

The wills described below are interesting in that the husband clearly did not think his wife was worthy of simply inheriting everything and when she died then dividing the estate amongst the children. If the husband had followed this “standard” practice the wife could have gifted or lent money as she saw fit during her lifetime. All of this court conflict and a family that will never be healed could have been avoided.

Instead this is what the family patriarch did.

The father’s lawyer prepared a relatively sophisticated set of Wills, which created two separate trusts. Firstly, a family trust that allowed the executors at their absolute discretion to sprinkle both income and capital amongst the family members, including their spouses and children. The second trust was a trust simply for the wife so that income could be distributed to her during her lifetime. Upon her death and as of the time of the court decision, she was still alive although aged and beginning to suffer psychiatric setbacks, the two trusts would be divided amongst the children equally. Two of the three children seemed to be quite accomplished and were named along with the mother as one of the trustees. In the event of a disagreement amongst the executors, the majority ruled and all decisions must include the decision of the widow. However, one of the three children one can assume was clearly a black sheep of the family. He was not named as an executor and this son who had been married three times was to receive over the years significant payments from the estate. He was paid a $5,000 per month stipend along with various capital distributions to assist him.

However at the same time, the executors with no real paperwork or documentation, began to lend money to various members of the family. Compounding this, the situation with respect to the management of the estate fell apart when the widow’s mental capacity began to deteriorate.

Also the executors for 10 years never either formally applied to pass their accounts or provided the black sheep son with any specific details of the financial administration of the estate.

After 10 years had elapsed, all the family’s accountant provided the black sheep son were a set of unaudited financial statements with no supporting documentation.

The black sheep son applied to have his siblings and mother removed as estate trustees.

As we had described in earlier blog articles, the test for removing an executor especially one that has been granted explicit and unfettered discretion is extremely high. In this case, the court easily found that such a threshold had been met. The law is reviewed in great detail and the case and those decisions contained therein are extremely helpful for any serious student of this area of the law.

Once again the law of wills and estates leave a trail that leads back to England. The law for the removal of an executor is first set out in Lettersted v. Broers, an 1881 decision that holds that the main guide in determining whether or not an executor should be removed is the welfare of the beneficiaries. This has been supplemented by section 37 of The Trustees Act and there are a number of Ontario decisions that expand upon this greatly. One can do no better than the decision of Justice Ricchetti in Virk. As we have described elsewhere, an absolute discretion does not mean you can do whatever you want. The court held in this particular case that the trustees/executors had engaged in several forms of conduct that were so unreasonable as to amount to conduct in which no honest or fair dealing trustee would have engaged.

They were removed and replaced by a trust company.

JOINT TENANTS vs TENANTS-IN-COMMON

Date: 29 Mar, 2022

There is no more basic yet more misunderstood term in real estate than the difference between joint tenancy vs. tenants-in-common.

These are the two most common methods for multiple people or companies owning a single property. There is a vast difference between the two, despite the similarities in their names. Joint tenancy  or Joint Tenants means there is an automatic right of survivorship between the multiple owners. If two or more people own a single property as joint tenants, upon the death of one of them, their ownership interest automatically flows to the others irrespective of the deceased’s Will. Far and away the most common example is that of the family home. The vast majority of couples purchase their homes and take title as joint tenants. Upon the first of the spouses to die the other becomes with very little legal work or formality the sole registered owner of that property. One’s Will has no effect and is irrelevant.

Tenants-in-common has no right of survivorship. When one of the multiple owners who hold a property as tenants-in-common dies, their interest goes wherever their Will says it goes. This is appropriate for business or partnership relationships. Tenants-in-common permit different percentage ownership interests in a property unlike joint tenancy.   In Joint tenancy every owner must have the same percentage ownership

The difference is immense and careful attention needs to be paid to this. 

Severing Joint Tenancy

An Absolute Discretion Does Not Mean Whatever You Want Aka Limits On What An Executor Can Do

AN ABSOLUTE DISCRETION does NOT MEAN WHATEVER YOU WANT
Date: 22 Mar, 2022

In early 2022, the Ontario Court of Appeal released an important decision titled Walters vs. Walters Estate. The case is a family tale of disharmony. Unusually, this case was not about a second marriage.   In this case the Mother died, survived by her husband of 60 years and two adult sons. The sons and father did not like each other. One can assume that there had to have been a great deal of family history for this type of friction to have evolved.

In boilerplate language, the wife’s Will said keep all of my estate after I die in a fund for the benefit of my husband and pay the interest and even as much as of the capital as is necessary to care for him.  Upon his death, the balance of the estate would go to the children. The clause which one will find in most Wills contains in retrospect two contradictory terms.  On one hand the will stated that in essence, the executors in their absolute discretion shall  decide how much money should go to their father.  In contrast, the same clause contains the marching orders that their father’s comfort and welfare are their mother’s first consideration.  The case revolved around the husband’s demand that his sons, as executors, release to him sufficient money to live in an unofficial retirement setting. The sons who strongly disliked their father delayed matters. Their lawyer asked for details of their father’s needs and his own financial ability to pay for them. While technically correct, it breached the spirit of the wills phrase “..my husband’s comfort and welfare on my first consideration.” Further, the monthly amount requested was reasonable. Father & sons duked it out in court.

The sons pointed and relied upon their unrestrained discretion.  The father pointed to the intent of his comfort and welfare being primary as contained in his late wife’s Will.

Which one wins?  Not surprisingly the father. The absolute discretion came with guiding language.  The sons breached their duty as executors and were removed.

This case is a careful summary of the law on executor’s duties and the limits on their discretion.

In the order listed by the court, it stands for the following:

(a) The armchair principal of Will interpretation, The Will makers’ intention is determined by the words in the Will itself and its surrounding circumstances at the time the Will was written.

(b) The court cannot easily interfere with an executor’s exercise of their discretion.

(c) The court can interfere if there is a breach of fiduciary duty or if the executor has acted with a lack of good faith.

(d) Good faith can mean not being influenced by extraneous matters. A clear example is a decision based on racial prejudice.

(e) Waters’ Law of Trust in Canada (for non lawyers, think of the fattest most complicated legal textbook imaginable), yet it is the Bible on the law of trust in Canada. Waters said the court can interfere with an executor (who are generally all trustees) even if the Will gives them a free hand to make decisions, if:

  1. The decision is so unreasonable that no honest or fair dealing trustee could have come to that decision;
  1. The trustees have taken into account considerations which are irrelevant to the discretionary decision they had to make: or
  1. The trustees in having done nothing cannot show that they gave proper consideration to whether they ought to exercise the discretion.

(f) Maybe and maybe not, determining the financial resources of the father was relevant.

(g) The sons’ distrust of their father was an extraneous factor in other words a breach of their fiduciary duty.

(h) All of this was decided without a trial. It was heard as an application. Just written sworn statements (affidavits) and lawyers standing up on their hind legs and making submissions to the court. There were no cross-examinations. No Perry Mason moments.

(i ) The available evidence was dad was almost broke and the money dad wanted was in line ($3,875 monthly) with other retirement homes.

(j ) The cost award was a bit of a joke. $26,000 all in for the application and $5,000 all in for the appeal. I have no hesitation in speculating that the legal fees easily exceeded $100,000 per side and I would not be surprised if they exceeded $200,000.

TWO STATUTES TO CONSIDER

Two Status To Consider
Date: 14 Mar, 2022

Some statutory considerations for setting aside a gift a.k.a. actual legislation and not judge made law, are set out below.  There are a number of actual Statues that have a serious effect on gifts and their validity, and we summarize two of them as follows.

1. Fraudulent Conveyances Act.  If a gift is given with the intent to defeat or defraud creditors those gifts are void. An example of this is in the case of Habibi v Arabi  which was an example in a family law case in which approximately 15 million US dollars was transferred by the husband to his father ostensibly as a gift.   Sorry the money goes back and you will have to share it with your ex wife.

2. Substitute Decisions Act. The Substitute Decisions Act is the go-to law when one deals with Powers of Attorney.  It is the Substitute Decisions Act that creates Powers of Attorney. One simply needs to look at sections 2(3) and 2(4) of the Act.  One can start with the premise that everybody has capacity to take any of their actions unless there are reasonable grounds to believe otherwise. Alternatively, if one is subject to a guardianship of property, the onus of proof that the recipient or a person who entered into a contract with them had capacity is not there starting one year before the creation of the order of guardianship. In other words, the Act presumes that everybody has the ability to make a gift or contract unless an order for guardianship exists.  The presumption of capacity, that is that you knew what you were doing, is eliminated for a period starting one year before the finding of guardianship.