The primary purpose of an executor is to bring in the assets of the estate, pay all of its debts and then to distribute those assets in accordance with the terms of the Will. On paper, a relatively straight forward and simplistic set of rules. However, the reality often is far more complicated and can involve conflicts with those nearest and dearest to you. The duty placed upon an executor is a fiduciary duty. In other words, a trust relationship. An executor is placed on a high pedestal, built upon a foundation of trust. If you breach that trust relationship, you can be removed as an executor, forced to pay the unnecessary legal and other costs incurred by the estate as result of your misdeeds and be responsible for your own legal fees. An executor is required to act in a prudent and careful fashion guided by what a prudent business person would do in the same situation.
Even if named, do I have to act as an Estate Trustee?
The answer is no. At the outset, even if you have been appointed in a Will or are the most obvious candidate to apply to be appointed as estate trustee in the absence of a Will, you are not bound to take up that responsibility. At the very beginning, you can resign and/or decline to so act. However, if you pick up the mantle and begin to act as an estate trustee, and certainly if you apply and are so appointed by the courts, you can only be removed from that position by an order of the court.
All of the responsibilities of an estate trustee, once you assume that responsibility are yours and you must fulfill them it to the best of your ability.
The most common scenario in which a person will decline their appointment as estate trustee, is for an estate that has a negative value. Even though an estate trustee’s fees are paid in priority to any creditor, it rarely is worth the aggravation and effort to carry out those duties. Often if the net worth of an estate is one that is suspect, a preliminary unofficial inventory will be a prospective executor’s first duty.
Faithful readers of this blog will be aware of the earlier decision of Justice Dunphy of the Ontario Superior Court of Justice, who held as a result of a “basket clause” found in a standard precedent for Primary and Secondary Wills that the Secondary Will was invalid.
All one needs to know is that as a result of Justice Dunphy’s decision, thousands of Wills created across the province by hundreds of law firms may very well have been invalid. This led to lawyers across the province, including our firm, sending out letters and emails to their clients warning that the estate planning that had been done on their behalf may need to be redone. Luckily the executors of the Milne Estate decided to appeal.
On January 24, 2019, the Ontario Divisional Court reaffirmed the validity of the Will that had been criticized and invalidated by Justice Dunphy.
While the precedent that our firm had been using was a slightly different form than that criticized by Justice Dunphy, it is now academic. The court accepted that the very premise of Justice Dunphy’s criticism of the Will in which he stated that a Will was in essence a Trust was undercut by the Divisional Court.
Bottom line, the Estate Bar and its clients across the province can breathe a sigh of relief as there is no need for an update, there is no need for changes, the existing Wills that our firm had prepared for you are as valid as the date upon which they were originally drafted.
That is not to say that reviewing the factual basis upon which your Wills were drafted, is not a valid exercise.
If things have changed, if the people you had initially felt were appropriate executors no longer hold that title in your mind, then you should return and speak to one of our lawyers. Well done to the appeal counsel and to the Divisional Court in pouring oil upon troubled waters.
What is an estate to do when a beneficiary cannot be found. While relatively rare, this does occur and it has been the author’s experience that in the absence of specific instructions in the will, this can lead to significant costs. There are specialized beneficiary hunters and as one can imagine they are not cheap. Such an effort is required before the court will assist.
One remedy is an application to the court for what is commonly known as a “Benjamin” order. The name arises from an almost 120 year old decision from England. However it has been adopted by a number of Canadian Courts and most relevantly in Ontario by the decision in Kapousouzian Estate v. Stink.
In a recent decision by Justice Rady in Steele v. Smith the judge examined the circumstances. Suffice it to say, the court looked at numerous factors including the lengths that the executors had gone toto try and find the missing beneficiary. The effect of a “Benjamin” orderis a declaration that the missing beneficiary had pre-deceased the testator and as such the will would be interpreted through that lens. In the Steele decision it would mean that the remaining beneficiary would receive the missing beneficiaries’ share.
The Public Guardian and Trustee, a Government agency opposed the “Benjamin” order asking that the monies be paid into court while further searches were made for the missing beneficiary. In the Steele decision, the executors were ultimately successful. Primarily, because they had made extensive efforts to find the missing beneficiary.
One alternative to consider is when a will is being drafted to provide the executor with discretion, after reasonable and extensive efforts to locate a missing beneficiary to simply have their bequest or interest in the estate eliminated. The circumstances in which such a clause is warranted would include naming a beneficiary that the testator had long been alienated from.
HOW TO USE A TRUST TO SAVE THOUSANDS OF DOLLARS IN PROBATE FEES.
This strategy is driven by 2 primary goals.
To arrange for an orderly estate succession (what happens after you die) and minimize estate administration tax, also known as probate fees. An additional benefit can be a reduction in exposure to potential creditors.
SOME BASIC PRINCIPALS.
A “Testator” is the formal name of the person making the will, the whose death activates the will.
A “third party asset holder” is usually an institution that is holding an asset for someone. A prime example would be a bank maintaining a bank account for the testator. Another common third party asset holder is the Province of Ontario which maintains a land registry system controlling the registration of owners of real estate.
The “Attorney” in Powers of Attorney does NOT mean a lawyer, rather it is the person granted the authority to act on your behalf while you are alive.
“Probate” is the process by which the Superior Court of Ontario formally appoints someone to represent the estate, the executor or estate trustee and seals and certifies that a will is indeed a person’s last will and testament subject to a later claim.
- The main purpose of “PROBATE” is to both formally appoint an individual as the estate trustee, also known as “executor” and, in the case of such an appointment with a will annexed, it certifies to the world that this indeed is the late testator’s last will and testament.
- Simply put, it is the method by which, for all third party asset holders, a will is certified to be the last will of the deceased and can be acted upon.
- However, the Province of Ontario, in return for the granting of Probate, formally known as a Certificate of Appointment of an Estate Trustee, either with or without a will annexed, will levy an estate tax roughly equal to 1.5% of the value of the assets being probated.
- By a combination of a series of documents and transfers which are set out in greater particularity below, the need to pay this probate tax is reduced and/or eliminated.
- In the era of million dollar homes being common place, the probate fees saved can easily exceed $10,000.00 or more. Another benefit is that it avoids the laborious and time consuming process of applying for probate in many instances.
- Probate, especially one centered in the City of Toronto is a process that can easily take in excess of 6 months during which the administration of an estate can be suspended. Even determining what the assets are can be caught in this lengthy never never land.
The documents involved include the following:
- Primary will. This is the will in which assets that cannot be protected from tax are subject to probate fees. An example would be a liquid asset that the testator did not want to add any additional ownership names to. Another example are registered investments such as RRSP or RRIF of which only the testator can be the owner, and it does not make sense to have a named beneficiary.
- Secondary will. This is one of the two primary document engines that accomplish the entire thrust of this process. A secondary will is the will that deals with those assets to which probate need not apply. An example would be shares in a privately held corporation or property held in trust for the testator by others. This would include a piece of real estate owned jointly owned with others, often family members but with a trust agreement confirming that beneficial ownership remains solely in the hands of the testator.
- Power of attorney for property. This is a crucial document and, in its absence the only alternative is an extremely expensive court application for the appointment of a guardian of property. Of course, one must recall that the essential difference between a power of attorney and a will is that the power of attorney grants power and is only effective during the life of the grantor, but a will disposes of assets and only takes effect upon death.
- Power of attorney for personal care. This is the document that grants to the attorney the ability to make vicarious decisions for one’s health which includes residence as well as medical decisions.
- An extensive multi page trust agreement. The other primary document along with the secondary will. In this agreement, both the beneficiaries and the trustees sign and acknowledge that the assets that are specified in the agreement, which will often include the primary residence of the testator and various liquid assets irrespective of ownership still remain solely and beneficially owned by the testator until death. Upon death, these assets fall into the secondary will (and if you recall, this is the will that is not subject to probate and probate fees) and are so distributed.
- Transfer(s). Title to any real estate one wishes to be covered under the aforementioned trust agreement and secondary will would be transferred. Here one would typically convey a family home into the name of the parent(s) along with some of the trusted children as joint tenants. Upon the death of the last of the parent(s), title remains solely in the names of the surviving children. However, the children are acting merely as trustees and the trust agreement mentioned above confirms that the home is to be dealt with in accordance with the terms of the secondary will.
- Trust declaration for the purposes of land transfer tax. This affidavit is required so no land transfer tax is triggered by the transfer of real estate.
- Transfer of liquid assets. If liquid assets, such as savings accounts are to have trustees added to them as owners, these are listed in the aforementioned trust agreement and further will require transfers to be done by both the beneficiary and trustees at the institution.
We have to point out what can go wrong. Primarily, the inter-relationship between the beneficiary (usually the parent) and the trustees (usually the child(ren)). While formal beneficial ownership always remains with the donors or testator, in the event of a conflict with a child, this may require the intervention of a court to enforce the terms of the trust agreement.
The trust agreement is the lynch pin and the formal declaration by all concerned that irrespective of the transfers, the beneficial owner remains the donor, usually the parent(s). This process is not appropriate when there is no close and reliable relationship between beneficiary and trustee. However, in the instance of a close family network, especially as the donors become older, this is a practical and beneficial process for all concerned.
Also the trust agreement protects the assets from being claimed by ex-spouses of trustees or their creditors. It also permits the trustees who may own their own primary residence to maintain the capital gains exemption for everyone’s residence.
The cost is generally similar to the fees we charge in administering an estate. The probate fees are an outright saving. If you are interested in learning more about this approach please contact Nelia Senra, our estate clerk at firstname.lastname@example.org or 905-455-7300 ext. 226
You must be very careful in choosing the witnesses to your will. A normal will,(in other words, not a handwritten holographic will which is an entirely different topic,) requires a will to be signed by the person making the will and in front of two witnesses who must also sign their name.
However, no beneficiary or their spouse may be a witness. If they are, to paraphrase, Section 12 of the Succession Law Reform Act “where a will is witnessed by a person to whom or whose spouse is a beneficiary, the inheritance is void as it concerns the witness, their spouse or any person claiming under either of them”. So, be careful, it is important that the witnesses are completely unrelated and also in no way a beneficiary under the will.
What happens to your will if after you sign it, you marry? Unless some magic words are used in the will upon a subsequent marriage it goes poof, it disappears, it becomes void, it becomes invalid. The magic words are along the lines “I make this will in contemplation of my marriage to Kim Kardashian…” In those circumstances, your will will survive your marriage to Kim Kardashian.
What happens to your will if after you make your will you get divorced? In those circumstances the will is interpreted as if the person that you divorced had died immediately before you. So, if you name your wife as the executor and the beneficiary of you will and then you divorce her, unless you use some magic words your will will be interpreted as if your now ex-wife had died just before you. It is important to note, this is a divorce, not separation.
Elsewhere on our website we have described the 3 essential ingredients for a legal gift.
1. An intention to make the gift
2. An actual acceptance of the gift
3. An actual delivery of the gift
In the tragic case of Teixeira, a decision of the Ontario Court of Appeal, we have a gift that just fell short of the finish line.
Mr. Teixeira had, for 15 years been the ultimate good neighbour to Mary. Shortly before Mary died she made a will leaving $100,000.00 to her neighbour. She also wanted to give him a $100,000.00 gift and wrote out a cheque which was delivered to Mr. Teixeira. Mr. Teixeira went to the bank and the bank placed a hold on the cheque. Before the cheque could be negotiated, Mary died.
What actually had occurred was that the specific account that Mary had written the cheque on was $19,000.00 short. Mary had other funds in the bank, more than sufficient to cover the cheque but the bank needed her authority to cover the shortfall in the account. In the end, the bank refused to honour the cheque and Mr. Teixeira sued Mary’s estate.
Mr. Teixeira lost at trial and then lost again on appeal.
The first two steps set out above had been met but the final step of an actual delivery never occurred. Not until the cheque was placed into Mr. Teixeira’s account and the funds had cleared, would there have been an actual delivery and accordingly a completion of the gift.
One area that was not canvassed in the case was whether or not M. Teixeira had a claim of negligence against the bank itself. Did the bank contact Mary prior to her death to advise her that the specific account upon which the cheque had been written was short of funds and sought her authority to transfer enough money so as to permit the cheque to be honoured?
This case is an excellent illustration of the 3 factors that are necessary for a valid gift.
There are two types of Powers of Attorney available under the Substitute Decision Act enacted in 1992.
One is a power of attorney over property. The term “Property” can be misleading to the average lay person. “Property” does not refer to simply real estate and a home but rather anything of value that the grantor of the power of attorney may own. Also, the word “Attorney” can be misleading. The average person assumes this refers to a lawyer but that is not what Attorney means. Rather, it is the recipient of the power of attorney. The person that is being invested with power by the grantor of the power of attorney. We commonly refer to the granting of a power of attorney of property as akin to a blank cheque. You do not give away property or ownership of assets by way of power of attorney. Rather that is done by your will. What a power of attorney does do is it gives power away. It allows the recipient in most cases to make vicarious decisions on behalf of the grantor. While the attorney has an onerous fiduciary duty to the grantor, that will not do the grantor much good if the attorney is abusing the power granted to them. Or more simply put, your good friend that you trusted as your attorney may have serious legal responsibilities, but that will do you no good if they are broke.
It is also important to ensure that the attorney understands how serious their role is and how important it is especially if someone may in future look over their shoulder. Careful records and separation of assets must be kept.
It is crucial that an attorney not intermingle any of the property or assets of the grantor with their own. An attorney is entitled to receive some fee for their work but generally it is a labor motivated by responsibility. Often a familial responsibility such as taking care of your parents assets.
Most powers of attorney survive the grantor’s subsequent mental or physical incapacitation. In plain English, this means that the moment the power of attorney is signed, it begins to work. It generally does not start to work once the grantor becomes mentally incompetent.
For that reason alone, it is crucial that one pay careful attention in choosing the correct person. Not only must they be very responsible but they must be capable.
There is a way you can restrict a power of attorney to start only when you go “gaga” but you need a competent lawyer to set that up.
The risk of not doing a power of attorney is horrendous legal fees to come up with a court appointed substitute. That court appointed substitute usually is an order appointing someone as a guardian of property, such as for an incapacitated relative.
The costs are extreme, often in excess of $10,000.00 and are very laborious and time consuming.
There is the bitter irony that often, it is better to die without a will than then to become ill with no power of attorney. In no way are we advocating that one should skip doing a will but this is an exercise in explaining to all how foolish it is not to have proper powers of attorney in place.