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Category: Wills Estates and Powers of Attorney

Succession Planning: Lowering Your Beneficiaries Tax Bill on the Cottage

Date: 06 Mar, 2014| Author: Fred Streiman

Succession planning is a field of law that deals with wills, probate and estate planning after a person dies. This field of law is largely governed by the Succession Law Reform Act in Ontario but there are a number of other factors that should be considered. One very important consideration is tax, specifically capital gains tax. This is a tax on the increase in value of a capital asset, such as a cottage, while it was owned. When a person is left property in a will, and they are not the deceased’s spouse, capital gains must be paid. The rate on inclusion for tax purposes has changed over the years, but it is safe to say that this tax bill can be large. This is especially true for the family cottage.

There is a common scenario in this type of case. A family cottage was purchased for a few thousand dollars decades ago. Over the years the price has ballooned to hundreds of thousands of dollars or maybe more. This appreciation in value attracts a large tax bill which could force the beneficiaries to sell the family cottage in order to pay it off. This defeats the purposes of passing on the family cottage to the next generation. However, it does not have to be this way. With proper succession planning the testator (person making the will) can arrange their affairs in a way that significantly lowers the tax liabilities that the property will attract.

As an example, there are two simple techniques for lowering capital gains obligations that the beneficiaries will owe on the cottage. The first is to gift the cottage to them now. This will attract an immediate capital gains tax which will be lower than the future tax (assuming rates stay the same and property values continue to increase). The second is to take out insurance through a life insurance policy that will cover the expected tax liabilities when the estate is settled.

These are just two examples of the ways that tax implications can effect succession planning. A blog post cannot fully address all the issues surrounding the interplay between tax law and succession planning. Every situation is different and there may be better solutions for you. The lawyers at Dale Streiman Law LLP can help customize a succession plan perfectly tailored to your needs.

By: Fred Streiman and Stephen Duffy
Fred-Streiman

Estate Trustee, Civil Procedure and Punitive Damages: The Power of the Courts to do More than they Were Asked For

Date: 06 Mar, 2014| Author: Fred Streiman

In a previous blog post[1], I discussed the role of estate trustees and the consequences they face when they fail to live up to their fiduciary duty. The estate trustee is responsible for carrying out the last wishes of a person who died. Their fiduciary duty imposes responsibilities to look after the estate in a trust worthy manner with an eye to the interests of the beneficiaries. This is even more important when the estate trustee is looking after the estate for the benefit of children. This is the scenario that existed in Walling v Walling where the deceased appointed his brother as trustee over his estate. The deceased’s sons were minors at the time, therefore the will required the estate trustee to look after the estate until the youngest boy reached 21, at which point the trustee was obligated to turn over the estate to the boys. Unfortunately, this never happened and the children were forced to bring legal action to recover their father’s estate.

This case is important because it highlights the court’s power to impose significant penalties, even penalties that go beyond what the plaintiff is asking for, when the facts demand it. Punitive damages are a special type of money award that the courts can give. Typically, damages are awarded for specific harm, punitive damages are different though. They are designed as a punishment for conduct that the court deems particularly offensive to society. Their use is fairly rare in Canada but they will be used when the facts show a clear need.

This case warranted punitive damages because the trustee was exclusively responsible for a severe harm done to the children. By denying them their inheritances, the estate trustee made it difficult financially and limited their post secondary education opportunities. Furthermore, the trustees actions in excluding the children from their father’s funeral and denying them any significant sentimental mementos were particularly offensive. He was in a position of power and trust and he broke that trust to exploit the vulnerable children. The judge looked at the facts and award $100,000 in punitive damages. This was double the amount requested by the boys. The judge said it was warranted because a lower award would not properly reflect the court’s abhorrence of this type of conduct. Additionally, the judge was to use this award as a clear deterrent to others who may try similar actions in the future.

In litigation, there are rarely any certainties about the outcome the judge will provide. The court’s focus is upon justice and the judge’s decision will bear that in mind. In situations where a judge thinks a large amount is required they can go beyond what the parties have requested. Doubling punative damages in this case was warranted because of the specific effects that the estate’s actions had upon the children. This is certainly a rare occurrence, but it happens with enough regularity that people should take note of it.

The lawyers at Dale Streiman Law have practiced estate litigation for decades and are experts in all facets of estates law. They can help resolve any estate disputes in a timely and cost effective manner.

Executors, Trustees and Breach of Fiduciary Duty: What Happens When an Estate Trustee Ignores Their Responsibilities?

Date: 06 Mar, 2014| Author: Fred Streiman

An estate trustee is often called by the more traditional name of executor (male) or executrix (female). Their role is to carry out the terms of the last will and testament of the testator (the person who made the will). Estate trustees can be left with significant responsibilities in relation to the testators estate. Because their role is carried out after the individual has already passed away, the estate trustees relationship to the estate is characterized by a high degree of trust. This type of relationship is called a fiduciary relationship.

In Canadian law, the word fiduciary is often used to distinguish something as a special relationship. These relationships are common in Canada and some of the most prominent examples are the relationship between parent and child, corporate director to corporation, and business partner to business partner. Fiduciary law is a large area of law that covers topics ranging from aboriginal rights to corporate law. Within the estate planning context, a fiduciary relationship exists between estate trustee and the estate itself. The estate trustee is important in carrying out the final wishes of the deceased. For this reason, the law takes any breach of a trustees responsibilities very seriously.

Two cases from the Ontario Superior Court of Justice illustrate how the court is willing to punish rogue trustees that fall below the high standard the law sets. In Zimmerman v McMichael Estate[i], the estate trustee, Adam Zimmerman, used the estate of the late McMichaels (of The McMichael Art Gallery) as a personal bank account. He depleted the estate of millions of dollars through questionable expense claims. Mr. Zimmerman repeatedly failed to keep proper records for his expense. Nor could he provide sufficient answers to questions concerning expenses billed for steak dinners, mens clothing and sailing trips in Bermuda. His conduct fell well below the standard that a trustee owes. Therefore, Mr. Zimmerman was not owed any compensation for his time as trustee and he was required to repay nearly a million dollars to the estate as well as all the legal costs.

In The Estate of Paul Penna[ii], Barry Landen showed a similar level of neglect for his duties as estate trustee. He was eventually sentenced to 14 months incarceration for contempt of court. The saga began soon after the death of Paul Penna, who left Mr. Landen in charge of his $24,000,000 estate. Mr. Landen used the money to finance a lavish lifestyle complete with a house in Forest Hill and season tickets to the Toronto Maple Leafs. When his deceit was exposed he repeatedly refused to comply with court orders designed to protect the estates assets. Justice Greer eventually found Mr. Landen in contempt of court and ordered that he be imprisoned for 14 months.

The court in these two cases sent a stern warning to estate trustees and anyone owing a fiduciary duty. At all times, they must ensure that:

[list type=”decimal”]

  • They carry out their duties with honesty and due care and attention.
  • They personally carry out the responsibilities which have been delegated to them
  • They ensure that they do not have a conflicting interest with their duties
  • They are not obligated to be perfect but they must act in the best interest of their beneficiaries. Failure to do so can result in strict punishments.

[/list]

If you have a question about an estate trustee, rogue fiduciaries or the responsibilities of an executor, contact Dale Streiman Law LLP. They have decades of experience that makes them experts in all facets of estate law.

Succession Planning: Lowering Your Beneficiaries Tax Bill on the Cottage

Date: 05 Mar, 2014| Author: Fred Streiman

Succession planning is a field of law that deals with wills, probate and estate planning after a person dies. This field of law is largely governed by the Succession Law Reform Act in Ontario but there are a number of other factors that should be considered. One very important consideration is tax, specifically capital gains tax. This is a tax on the increase in value of a capital asset, such as a cottage, while it was owned. When a person is left property in a will, and they are not the deceased’s spouse, capital gains must be paid. The rate on inclusion for tax purposes has changed over the years, but it is safe to say that this tax bill can be large. This is especially true for the family cottage.

There is a common scenario in this type of case. A family cottage was purchased for a few thousand dollars decades ago. Over the years the price has ballooned to hundreds of thousands of dollars or maybe more. This appreciation in value attracts a large tax bill which could force the beneficiaries to sell the family cottage in order to pay it off. This defeats the purposes of passing on the family cottage to the next generation. However, it does not have to be this way. With proper succession planning the testator (person making the will) can arrange their affairs in a way that significantly lowers the tax liabilities that the property will attract.

As an example, there are two simple techniques for lowering capital gains obligations that the beneficiaries will owe on the cottage. The first is to gift the cottage to them now. This will attract an immediate capital gains tax which will be lower than the future tax (assuming rates stay the same and property values continue to increase). The second is to take out insurance through a life insurance policy that will cover the expected tax liabilities when the estate is settled.

These are just two examples of the ways that tax implications can effect succession planning. A blog post cannot fully address all the issues surrounding the interplay between tax law and succession planning. Every situation is different and there may be better solutions for you. The lawyers at Dale Streiman Law LLP can help customize a succession plan perfectly tailored to your needs.

By: Fred Streiman and Stephen Duffy
Fred-Streiman

Applying to Remove an Estate Trustee: Replacing Executors

Date: 05 Mar, 2014| Author: Fred Streiman

There are a number of reasons why a party would want to remove or replace an estate trustee. In this blog post I want to canvas the important elements that the court will look at when an application for a appointment of a new trustee is brought. I will also look at some of the possible grounds past cases have used as justification for replacing an estate trustee.

The first thing to note is that the courts are very reluctant to interfere with a testator’s intentions. The court will respect the fact that the deceased wanted that specific person to act as their estate trustee. However, there are certain reasons that will cause the court to intervene. The authority to do so comes from the Trustees Act and from the residual power of the court at common law (Judge made law). A co-trustee, beneficiary or any person interested in the estate of the deceased can bring an application to the court to have the trustee removed.

When considering an application to remove an estate trustee, the court will consider four things. First, the court should not lightly interfere with the testator’s decision. Second, there needs to be clear evidence of necessity. Third, the main consideration is the welfare of the beneficiaries. Fourth, the acts or omissions of the estate trustee must endanger the administration of the trust itself. This last consideration sets a very high bar for the applicant to meet. The estate trustee can always argue that they were acting reasonably and honestly. There is no obligation for the estate trustee to be perfect.

The court has repeatedly refused to set a clear point at which they will step in and remove the estate trustee. The facts of each case will determine the outcomes and the major consideration is always the welfare of the beneficiaries. In the past, successful applications have been made when the estate trustee failed to act at all, did not act in good faith, was unwilling to carry out the terms of the will, was unable to act as trustee because of incapacity or had a conflict of interest with the trust. This list is not exhaustive but it sets out some of the basic grounds for a successful application to remove an estate trustee.

If you have questions about estates and the conduct of an estate trustee, contact the lawyers at Dale Streiman Law LLP. They are experts in wills and estates and estate litigation. They can evaluate your claim and help you resolve the problem efficiently and effectively.

Executors, Trustees and Breach of Fiduciary Duty: What Happens When an Estate Trustee Ignores Their Responsibilities?

Date: 05 Mar, 2014| Author: Fred Streiman

An estate trustee is often called by the more traditional name of executor (male) or executrix (female). Their role is to carry out the terms of the last will and testament of the testator (the person who made the will). Estate trustees can be left with significant responsibilities in relation to the testator’s estate. Because their role is carried out after the individual has already passed away, the estate trustee’s relationship to the estate is characterized by a high degree of trust. This type of relationship is called a fiduciary relationship.

In Canadian law, the word fiduciary is often used to distinguish something as a special relationship. These relationships are common in Canada and some of the most prominent examples are the relationship between parent and child, corporate director to corporation, and business partner to business partner. Fiduciary law is a large area of law that covers topics ranging from aboriginal rights to corporate law. Within the estate planning context, a fiduciary relationship exists between estate trustee and the estate itself. The estate trustee is important in carrying out the final wishes of the deceased. For this reason, the law takes any breach of a trustee’s responsibilities very seriously.

Two cases from the Ontario Superior Court of Justice illustrate how the court is willing to punish rogue trustees that fall below the high standard the law sets. In Zimmerman v McMichael Estate[i], the estate trustee, Adam Zimmerman, used the estate of the late McMichael’s (of The McMichael Art Gallery) as a personal bank account. He depleted the estate of millions of dollars through questionable expense claims. Mr. Zimmerman repeatedly failed to keep proper records for his expense. Nor could he provide sufficient answers to questions concerning expenses billed for steak dinners, men’s clothing and sailing trips in Bermuda. His conduct fell well below the standard that a trustee owes. Therefore, Mr. Zimmerman was not owed any compensation for his time as trustee and he was required to repay nearly a million dollars to the estate as well as all the legal costs.

In The Estate of Paul Penna[ii], Barry Landen showed a similar level of neglect for his duties as estate trustee. He was eventually sentenced to 14 months incarceration for contempt of court. The saga began soon after the death of Paul Penna, who left Mr. Landen in charge of his $24,000,000 estate. Mr. Landen used the money to finance a lavish lifestyle complete with a house in Forest Hill and season tickets to the Toronto Maple Leafs. When his deceit was exposed he repeatedly refused to comply with court orders designed to protect the estate’s assets. Justice Greer eventually found Mr. Landen in contempt of court and ordered that he be imprisoned for 14 months.

The court in these two cases sent a stern warning to estate trustees and anyone owing a fiduciary duty. At all times, they must ensure that:

They carry out their duties with honesty and due care and attention.
They personally carry out the responsibilities which have been delegated to them
They ensure that they do not have a conflicting interest with their duties
They are not obligated to be perfect but they must act in the best interest of their beneficiaries. Failure to do so can result in strict punishments.

If you have a question about an estate trustee, rogue fiduciaries or the responsibilities of an executor, contact Dale Streiman Law LLP. They have decades of experience that makes them experts in all facets of estate law.

[i] Zimmerman v McMichael Estate, http://canlii.org/en/on/onsc/doc/2010/2010onsc2947/2010onsc2947.html

[ii] The Estate of Paul Penna, http://canlii.org/en/on/onsc/doc/2010/2010onsc4730/2010onsc4730.html

Determining Mental Capacity to Make a Will: Can a Person with Dementia Change their Will?

Date: 05 Mar, 2014| Author: Fred Streiman

Mental capacity is a very important topic when the validity of a will is called into question. There is no exact science to determining when a person is capable of making legally binding decisions, especially as it relates to their estate. Due diligence is required to ensure that the testator (person making the will) understands exactly what they are doing. With Canadians living longer than ever, questions relating to mental capacity, specifically for seniors with dementia, are on the rise.

There is a presumption in Canada that a person who has attained the age of majority can make a valid will. This presumption is rebuttable where there is evidence of suspicious circumstances that warranted further investigation. This can be anything that raises a suspicion in the preparation of the will, the capacity of the testator or a suggestion of coercion or fraud. Once this suspicion is raised, the onus shifts to the party seeking to enforce the will to establish that it was validly made. In terms of mental capacity, it is important to keep in mind that capacity is a legal definition and there is no set scientific standard that applies.

The recent BC Supreme Court decision in Moore v Drummond illustrates how the law evaluates a person’s mental capacity to make a will. Ms. Drummond died in 2011 at the age of 98. A year earlier, she made a new will that gave her entire estate to her neighbors of 40 years. Prior to this, she had a will drawn up in 1994 that left her estate to her son. However, her relationship with her son was tense and deteriorated over the years. Upon her death, the son claimed that the new will of 2011 should be excluded. In support of his claim he pointed to a medical opinion that was drawn up a week prior to Ms. Drummond changing her will. The report said she was incapable of making decisions regarding legal or financial affairs. The opinion was drawn up for the Public Guardian and Trustee of BC (PGT) using their standard form. The court also heard evidence that Ms. Drummond was suffering from dementia at the time. This raised suspicion that the will may be invalid on capacity grounds. Despite this evidence, the BC Supreme Court held that the will of 2011 was valid and that Ms. Drummond had the legal capacity to create a will at that time. The PGT report was insufficient evidence because it was drawn up specifically for PGT using a standard form. It was not a comprehensive medical opinion that addressed Ms. Drummond’s ability to create a will. Furthermore, at the time the will was made, her lawyer drafting the will took special steps to ensure that Ms. Drummond had capacity. The lawyer spent additional time with Ms. Drummond where they engaged her in conversation to evaluate her mental abilities. She was also able to fully remember the will and its dispositions more than 5 weeks later. This showed that she had sufficient capacity at the time the will was made and that she truly did intend to exclude her son from her will.

This case clearly shows that mental capacity to create a will does not mean perfect mental capacity. Diminished capacity raises a suspicion that the will is invalid, but the court can resolve this suspicion and declare the will to be valid. This is especially true when a lawyer drafting the will takes steps to ensure that the testator has the required mental ability to make a will. A medical opinion is not determinative in resolving issues involving legal capacity. They are informative and can be used to help make a legal evaluation. An experience lawyer will take specific steps to determine legal capacity and ensure that a will is validly drafted.

The lawyers at Dale Streiman Law LLP have over three decades of experience solving wills and estates issues. If you have a question about a will or the mental capacity to create a will, contact Dale Streiman Law and meet with our legal professionals to discuss your legal issues.

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