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Category: Wills Estates and Powers of Attorney

Beneficiaries Gone Wild

Date: 17 Oct, 2018| Author: Fred Streiman

Justice Spies, whose decisions have surfaced in this blog repeatedly,grappled with a group of siblings who suffered delusions as they fought over a $30,000.00 painting. I make no comment about the reasonableness of destroying a sibling relationship for mere money.

In the Newlands decision, the court had earlier found that one brother’s position with respect to a $30,000.00 painting was actually correct. The conclusion was the one brother was to pay the other siblings $30,000.00 and a family painting was his. That is not the point of this particular decision. Rather, it is the astounding fact that the two sides each spent approximately a quarter of a million dollars in legal fees fighting over the rights surrounding the painting.

What was crucial in deciding that the two brothers that failed to recognize at an early stage that their sibling was indeed entitled to purchase the painting for $30,000.00 had caused the parties to waste a combined $500,000.00 for no good financial reason though I am certain emotional and family history played a very large role in the parties’ motivation. When the successful brother asked the court to order costs, the judge carefully looked at all the circumstances. Most importantly the successful brother had made an early offer to settle which in the end reflected almost exactly what the court had done. The court ordered the unsuccessful siblings, out of their own pockets to reimburse almost all of the $250,000.00 spent by the successful brother. Justice Spies held:

“In my view, not ordering them to fully reimburse the successful brother for his legal costs would bring the administration of justice into disrepute.”

Some time ago, the norm was that the estate itself would bear the costs rather than the parties personally but the court has a discretion to order that the parties themselves be personally responsible. In another decision, Tarantino v Galvano, the court looked at the same type of factors and especially the lack of proportionality in deciding that costs should be borne by the contesting parties personally rather than the estate.

A Strategy to Reduce or Eliminate Probate Fees – Full Monty

Date: 27 Jun, 2018| Author: Fred Streiman

HOW TO USE A TRUST TO SAVE THOUSANDS OF DOLLARS IN PROBATE FEES.

This strategy is driven by 2 primary goals.  We call this strategy the Full Monty.

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, 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. This is a rare asset. An example would be an asset that the testator obtains after the Full Monty is created and no steps are taken to bring it under its control.
  • 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 Fred Streiman at Fred@dalestreimanlaw.com 905-455-7300 ext. 231

To learn more check out the illustration – The Full Monty

Weird Will Wonders # 1

Date: 31 Jan, 2018| Author: Fred Streiman

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.

Weird Will Wonders # 2

Date: 31 Jan, 2018| Author: Fred Streiman

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.

Weird Will Wonders # 3

Date: 31 Jan, 2018| Author: Fred Streiman

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.

Gift Gone Wrong

Date: 25 Jan, 2018| Author: Fred Streiman

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.

Power of Attorney – Property

Date: 16 Nov, 2016| Author: Fred Streiman

Thumbnail-LogoThere 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.

Negotiation of chattels and fixtures: Are they included or not?

Date: 14 Sep, 2015| Author: Elliott Dale

Thumbnail-LogoWhen you walk into a new home, you are not just looking at the colour of paint or choice of flooring. The furniture, mirrors, light fixtures, and appliances, all play into the aesthetics and feel of a home and may be one reason you buy a specific home over another. You might like the upgraded appliances or the rustic pantry in the kitchen. One thing to consider though is whether the furniture, appliances and fixtures you see come with the house or whether they are “extra”. Each residential Agreement of Purchase and Sale in Ontario contains a chattels and fixtures clause. When you go to look a new home you must determine, with the use of experienced realtors, whether an item is considered a chattel or fixture, and whether such is included with the purchase price or excluded.

In Ontario, all fixtures are deemed to remain with the property unless the seller excludes them. A vendor can take a chattel with them unless they include them in the agreement. It can be confusing to differentiate. A good rule of thumb is to ask whether the item is attached to a wall or space or can it be easily removed, almost temporary. If it only attached by a plug or a hook such as a mirror or picture, it would likely fall under chattel but if it is built in or requires tools to remove it, it likely falls under the category of fixture.

If you are a vendor, even if the answer seems obvious, clarify with your agent if there is something you want to keep to ensure that it is clearly written in the agreement. If you are a purchaser, do not assume that all you see will be yours and ensure your agent understands your needs. It is better to be overly cautious than move in on closing to discovery missing items you thought would be there. The more detail listed in the agreement the better. The parties are best to record by make and model the chattels to remain and what are to be excluded. Often, a good realtor can negotiate what fixtures and chattels are included or excluded in an agreement.

Specific attention should be paid to the hot water tank, furnace, alarm system or other equipment as these may be subject to rental contracts or leases. Your offer should clearly state whether or not the furnace and/or other equipment is being included in the purchase price. If you are a vendor, and if the furnace/a/c/equipment is being financed, you may be surprised to learn that you have to pay the entire balance off before closing. A warranty is made by the vendor that all included chattels are being transferred “free and clear of all encumbrances”, thus all the equipment being transferred has to be fully paid off.

In summary, diligence and detail is key to ensure all parties understand what they are buying, and what they are selling to avoid any disappointment, cost or large out of pocket payouts before closing.

By Shana Dale

Estate Administration Form – NEW FORM

Date: 01 Sep, 2015| Author: Fred Streiman

Thumbnail-LogoCompleting and filing this form is a new bureaucratic step. All involved, including the Provincial Government administering it, are cutting their teeth on the process as it evolves. One of our clients contacted the information line and asked what value they should input for the real estate owned by the deceased at the date of death. The erroneous answer that they received was whatever the MPAC valuation was. This is wrong. The MPAC valuation is often below the market value. While this may save the estate 1.5% in the estate administration tax, it leaves the estate open to much more in capital gains. Remember that while the deceased up until the date of death was able to enjoy a principal residence capital gain exemption, no such exemption exists for an estate namely from the date of death up until the date of the sale of the home.

As an example, in todays over inflated real estate market, it is not impossible for a property to increase by $50,000.00 in value from the date of death to the date of sale. All of that appreciation would be a capital gains, taxed at the highest market rate, roughly speaking $12,500.00 in tax. For further details on this point, you need to consult with the estate’s accountant, but be alive to the conflict between what is in the estate’s best interest by saving a 1.5% tax rate versus an effective 25% marginal tax for capital gains.

End of Life, Hospital and Home Visits

Date: 07 Aug, 2015| Author: Fred Streiman

Regularly, our firm is asked if we will make a hospital visit or go to a client’s home when they are not well enough to come to our offices.

While we are happy to do so, this incurs extra fees. Almost always the lawyer is accompanied by a law clerk as issues of capacity lurk in the background and the views of both a lawyer and an experienced law clerk are very important.

We have had the privilege to be entrusted with this responsibility repeatedly and we take it very seriously. Often time is of the essence and we take careful heed of the very short time lines that are often involved. It takes a delicate and sensitive hand to deal with clients who are often at the end of their lives, who have left drafting a Will or Powers of Attorney far too long, yet the necessity remains.

These are circumstances which are far from ideal and because the extra care and attention that is required and often the urgency that is involved, the legal fees are greater than the norm.

The end of life is rarely a kind or happy time in ones’ lifecycle, but it is a process that we approach with the gravity it deserves. We would be pleased to assist and for further information, contact either Fred Streiman 905-455-7300 ext. 231 or his law clerk Nelia Senra at ext. 226.

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