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Trust Protects Family

Joan Brown had one daughter.  The daughter led a troubled life.  She had a drug problem.  She was prone to depression.  She developed health problems. She was unable to work and became dependent on the Ontario Government for income support.

It was a happy day when her daughter had children of her own – three girls.  They were Joan’s only grandchildren.  It was a sad day when the grandchildren were apprehended by government child welfare workers and put into a foster home.  

Joan became estranged from her daughter, but did not stop caring for her. 

Joan wrote her will in 1997 when she was 72 years old.  She was going to leave an estate of roughly $700,000 and it was important that the will was done right.  If she gave the money directly to her daughter it would create trouble.  

First, there was the drug addiction to worry about.  The money would give her daughter unrestricted access to a steady flow of drugs.   No good could come of that.  Second, the inheritance would cut off the daughter’s government support.  

Then there were the three granddaughters to worry about.  One of them, named Ashley, was good in school.  Joan was worried that her daughter would squander the money without sharing it.  Her daughter’s life was a train wreck – Ashley had the chance for something better. 

The will set up a special trust.  The $700,000 was placed under the control of a family friend who was appointed under the will as the trustee.  He was given the power to spend the money on the daughter and on the granddaughters in whatever way would do them the most good.  

Joan died exactly two months after she signed her will and her will was put to probate.  Over the eight years that followed, the trustee parceled out the money in dribs and drabs in a heartfelt effort to make everyone’s life better.  

Ashley was given a total of $86,000 while she successfully pursued a university degree.  Joan would have been delighted by that.  Her daughter was not delighted.  The trustee gave her a paltry $5,000 in total over the same eight year period. 

She hired a lawyer and tried to overturn her mother’s will.  If she succeeded, the $500,000 left in the trust would belong to her.

There were two ways to attack the trust.  First, was a method called “trust busting.”  The court has the power to collapse a trust and give out the money, but only where it is in the best interests of the beneficiaries to do so.  The daughter could not convince a court on that point.  The judge who heard the case describe Joan’s will as “sensible, sound and fair.”

Second, she could try to attack the will.  If the will was invalid, then the trust would be invalid too. She would get the whole estate.  The second method seemed more likely, but her case was thrown out on a preliminary motion.  Once a probate order has been granted, courts have a discretion to refuse a request to re-open things.  It was delay that killed the daughter’s case.  If the attack had been immediate, the court might have allowed it to go to trial. 

What lesson do we learn?  Ultimately, it is up to each of us to decide how to best pass our wealth on to our family.  That means looking at the whole picture.  Sometimes it is not as simple as cutting up the estate like a piece of pie and giving it out.  An inheritance can hurt some beneficiaries – Joan’s daughter was a prime example.  An inheritance can also make a world of difference in the life of someone positioned to benefit from it – think of Ashley.  None of us want to look down from heaven to see a court battle, but all of us want the best for the people we love and leave behind as heirs.  Some of us, like Joan, might want to set up a special trust in our wills. 

Joan’s story is real.  The details were taken from the judgment published by the Court.  Names have been changed to protect the family from further embarrassment.

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Child in the UK is Estate Planning Challenge

David Smith is proud of his son, Bob.  His son is a banker, and a successful one.  So successful that he ended up living in London, England with a job at an international bank.

That creates an estate planning problem for David.  Getting on in years, David is making a will.  His son will get an equal share of the estate along with his siblings.  That will likely amount to an inheritance of just under $500,000. 

Here is the problem.  The United Kingdom has an inheritance tax.  It will not catch the inheritance as it comes into the son’s hands.  The father lives in Canada and has no connection to the UK.  The inheritance will be caught and the taxes paid later when the son passes away.  

The inheritance tax is charged at the rate of 40% against all of the son’s wealth when the son dies.  If the father dies next year, and the son invests the $500,000, it might be the equivalent of $1,000,000 by the time the son dies.  The tax against the inherited assets will amount to $400,000. 

Those figures could be converted into English pounds but the point is illustrated more clearly if we stick with Canadian dollars.  Regardless, it amounts to a lot of money that will leave the family fold.  Bob’s children and wife will be the poorer. 

There is some good news.  David can sign a special will here in Canada.  That will sets up a trust to hold his son’s inheritance.  The son can be the trustee of the trust.  The son and his family can benefit from income and capital from the trust.  If it is done correctly, none of the money will be subject to UK inheritance tax when the son dies.  That will keep the $400,000 in the family. 

David signed a will on those terms.  It was drafted with joint input from two lawyers, one in Canada and one in the UK. 

 More good news, the trust may also be of use to the son if his marriage breaks up.  His spouse will have a difficult time under UK law if she tries to claim an interest in assets in the trust.

 There is an exemption under the inheritance tax regime that will avoid the tax in some situations, without the use of a trust.  Every person in the UK is entitled to shelter just over $500,000 from the tax using that exemption. 

 The exemption is no comfort to David. His son is doing well in the UK.  He has already built up assets that will outstrip the exemption amount.  Thus, this kind of planning is essential in David’s case to keep his son, Bob, out of the inheritance tax net. 

 After David dies, the trust will protect his son’s inheritance from the tax.  Bob will still have to decide where he wants to keep the trust’s assets.  If he moves the assets to England, they become subject to a recurrent 6% tax that will hit every 10 years.  That can be reduced or avoided if Bob keeps the assets offshore.

 Do you have a child who lives in the UK?  If so, the tax may not be a concern if the child is a starving artist.  Add up the child’s personal wealth and the amount of the inheritance you plan to give them.   If the total is less than the exemption amount, the exemption may be all of the comfort you need.

 David’s story is true.  Details have been changed to make it impossible to guess his identity. 

 All of this will sound familiar for families with children who have moved to the United States.  The US has an inheritance tax of its own.  Trusts are used in the same basic way, parking assets where they are safe from the estate tax at the eventual death of the children.

 The object of good estate planning is to die well.  You may not have a child in the United Kingdom, but you may have a cottage, or a farm, or high net worth.  You might be part of a blended family, or have a child with special needs.  Each of those presents a challenge you can successfully overcome.  Think of these as opportunities, not pitfalls.

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Second Will Useful for Assets in Different Jurisdiction

Hugh MacDonald immigrated to Canada from England some fifty years ago.  His English relatives keep dying off.  None of them had children, and he has inherited a substantial amount of money in the UK.  He has left it there.  It is invested with UK investment firms.

He has also acquired wealth of his own here in Canada.  He worked hard at a good job and was a “saver.”

What happens when a person dies with assets in different jurisdictions and only one will?  The will is put to probate where the deceased resided at death.  For Mr. MacDonald, that would be Calgary.  After a grant of probate is issued, the Canadian executors could start dealing with Canadian assets.  That would mean collecting them in one spot and transferring them to beneficiaries under the will.  They would also have to make an effort to deal with the UK assets.  That would mean sending the probated will to the UK and asking whether the UK financial institutions would be willing to send the money along to Canada.  Sometimes, the answer is “No.”

The UK financial institution often demands that the order of probate and last will and testament be “re-sealed.”  That means launching a separate probate proceeding with the English courts.  The English court would look hard at the will, and might not like what they see.  The laws in the UK differ from the laws in Canada.  Sometimes the courts demand proof that the will was validly signed under Canadian law.  All of this can be time consuming, and expensive.  That is particularly the case if the poor executors live in Canada and have to deal with solicitors in the UK while wrestling with a seven hour time change.

The delay is made worse because the executors cannot tackle the UK investments until they have succeeded in getting the Canadian grant of probate.  That can take months.  Everything in the UK simply sits on ice while that happens.  After successfully re-sealing, they have to collect all of the UK assets and then send them to Canada.  The Canadian estate cannot be finalized until the UK assets have been received by the Canadian executors.

From an income tax perspective, they will also be dealing with a Canadian estate holding foreign investment assets.  They need a good accountant.

Mr. MacDonald hopes to avoid most if not all of those problems.  He signed two wills.  One will was prepared and signed here in Canada to deal with his Canadian assets.  It appoints a Canadian executor.

 The other will was signed here in Canada, but was prepared by a lawyer in England.  It deals exclusively with his assets in the UK.  It appoints a UK resident executor.

 When he dies, the Canadian executor will deal with the Canadian assets under the Canadian will.  The UK executor will deal with the UK assets under the UK will.

How is that better?

First, the UK will does not have to be “re-sealed.”  Instead, it is simply put to probate.  Since it is prepared to comply with UK laws, it can be put to probate easily.  There will be no questions relating to its validity.  The application is simple.  It is cheap.  The UK executors can hire a lawyer who lives down the block, and pop in from time to time to sign papers.

Second, the executors in the UK can tackle the UK assets immediately.  The UK executors can bring an application for probate without waiting for anything from Canada.  Both estates can be handled concurrently, rather than consecutively.

Third, the tax situation will be clearer.  The Canadian estate will be handled by a Canadian accountant under Canadian income tax law.  The UK estate will be handled by a UK accountant under UK income tax law.

Mr. MacDonald’s name and other details have been changed to protect his identity.

 Do you have assets in a different country?  If so, this may be an idea for you, particularly if you have land.  It should be custom fitted to your situation.  The legal fees can be high so it is not for everyone. Sometimes, one will is better.

 There is another solution that never caught on.  A special and standardized format for wills has been developed that could be used in a wide range of countries. The “international” will can be re-sealed without question or challenge.  It only works if the country has signed on.  Here is the problem.  Very, very few countries have.  Until more do, using a two will strategy will often be the right solution.

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Charitable Gifts by Estates and Trusts

EXCERPT FROM TAXATION OF TRUSTS:  CHARITABLE GIFTS BY ESTATES AND TRUSTS

     __________________________________________________________________

 

Reprinted from Chapter 3 “Taxation of Trusts”, s. 3.4.1 “Summary”, p. 191, in

Taxation of Trusts and Estates: A Practitioner’s Guide 2011,

by Larry H. Frostiak, John Poyser and Grace Chow, by permission of

 Carswell, a division of Thomson Reuters Canada Limited.

     __________________________________________________________________

A trust is an individual and can make a charitable gift.  Where the trustee has the discretion to make or not make a transfer to charity then the transfer will generally be characterized as a gift.  As a gift, it then qualifies as a charitable donation that can be used by the trust on the T3 Return, claiming tax relief under subsection 118.1(3).  Not all transfers of property from trusts to qualified donees will qualify as charitable gifts, however.  A mandatory transfer of trust property to a charity, without the same discretion on the part of the trustees, is not a gift but a capital distribution.  As a capital distribution, the value of the transferred property cannot be claimed as a charitable donation on behalf of the trust or estate.  Where that occurs there still may be opportunities for the settlor of the trust to take advantage of the transfer of property in securing use of the charitable receipt on the settlor’s tax return.  The most common opportunity to do so is presented by subsection 118.1(5) which deems certain gifts by will to be gifts in the settlor’s year of death.  Since March of 2001, treatment as a gift in the year of death under subsection 118.1(5) has been extended beyond mandatory transfers and now extends to a broad collection of discretionary transfers from estates to qualified donees.

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Give Out Shares, Not Things, When Time to Make Will

David Smith signed a will when he was 75.  He had two children, and the will gave his cottage to his daughter, who spent a lot of time there, and his house to his son to even things up.  That seemed about right to David as the two properties had roughly the same value. 

His remaining assets were to be sold and divided equally among his grandchildren.  He lived off of his pension, and figured that after the house and cottage were gone there would be little left.  It would be small nest egg for each of the grandchildren – a remembrance from their granddad of a few thousand dollars each. 

He was well satisfied with what he had done.  It was simple.  It felt right. 

Things went awry however.  First, David lost his marbles.  There is nothing uncommon about that.  Canadians are living longer and longer.  The percentage of us who will suffer from dementia of some kind before we die is both significant and growing. 

Second, his financial affairs were taken over by his sister.  He had appointed her in a power of attorney document he signed along with the will.  It was her job to take over his finances if he became unable to handle them himself.  There is nothing uncommon in that.  It was good planning.  Without the power of attorney, a court application would have been necessary before someone could take over his affairs. 

Third, his sister decided to sell the house.  There is nothing uncommon in that either.  It was sitting empty.  The money from the sale of the house could be nestled away in safe investments.  It made no sense to find tenants for the house and rent it out.  Being a landlord can be challenging.  Tenants have been known to trash the house they rent.  His sister concluded that cash was safer and easier, and proceeded to sell the house. 

What happened when David died?  His daughter received the cottage.  He still owned it when he died and it was left to her under the will.  The son was out of luck – he was to be given the house under the will, but the house was gone.  The money from the house formed part of the “residue” of the estate, and the residue went to grandchildren under the terms of the will.  The son received precisely nothing. 

David did not intend to see his son cut out, but that is precisely what happened.  When a gift of a specific item, like a house, is made under a will and the item is not there when the will-maker dies, the gift fails.  The heir who was to receive it is out of luck. 

Most lawyers try to dissuade clients from making wills that divide wealth by distributing items.  Instead, they recommend that the majority of a person’s wealth, including large ticket items like houses, simply form part of the residue of the estate.  The residue of the estate is then divided under the will into shares. 

If David had followed that advice, his will would have read differently.  The will might leave $5,000 to each of his grandchildren, and then divide the residue of the estate into two equal shares, one for his son and one for his daughter.  No mention would generally be made of the house or the cottage. 

There are several advantages to this type of will.  First, it allows for each child to receive a share of the deceased parent’s wealth that is exactly equal.  It will usually be equal to the penny.  That is impossible if one gets the house and the other the cottage.  They might start out roughly equal, but never end up that way.  Second, no one, like David’s sister, has to worry about selling things.  No matter what is sold, whether house, cottage or car, the shares always stay equal and no one, like David’s son, gets cut out. 

Mr. Smith is real, but facts here have been changed to obscure his identity and that of his family.  Moreover, the story told here is not unique.  This is a flaw in many estate plans and one that plays out over and over again, hurting family after family. 

John Poyser practices as a wills and estate lawyer with The Wealth and Estate Law Group (Alberta). A former chair of the Wills, Estates and Trusts Section of the Canadian Bar Association, he co-authors a textbook for lawyers and accountants on trust and estate taxation.  Contact him at (403) 613-2128 or jpoyser@welglawyers.ca, or visit www.welglawyers.ca.

© John E. S. Poyser 2009.

This article was current when it was written.  No effort has been made to update it.  It is not a replacement for legal advice.

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Massive failure to launch

Linda Smith died suddenly, at 91 years of age, still in her own house and living independently.  She was a widow, and had two sons, Larry and Bob.  Neither boy had succeeded in making his way in the world.  Both lived at home with her for significant periods of time over the years.

Larry was the older of the two.  He had a grade ten education, and worked odd jobs most of his life.  He set up a small business painting signs but earned a pittance.  Shortly before his mom died he had been evicted for non-payment of rent and had moved back home to live with her.  He described himself as an aging “beatnik.”  His mom had steadily given him money over the years to get him out of jams and meet his obligations.  It averaged about $5,000 a year.  As an example, she paid a month’s worth of rent to the Larry’s disgruntled ex-landlord to avoid legal action after Larry moved home.

Bob was the younger brother.  He had a college degree in business administration.  He fancied himself a work at home stock trader and never had a real job.  On two separate occasions he managed to build up a stock portfolio nearing $500,000.  Market crashes wiped him out both times.  For the most part he lived at home, even when he was doing well on the stock market.  His mom gave him an allowance, ranging from $300 to $500 a month.  He always took the allowance.  He never bought groceries – even when he had money in the bank.

The two boys hated each other.  Linda did not like it, but knew she could not change it.  Her plan was this: she would buy a little house for Larry and give the house she was in to Bob.  Both boys would have a place of their own.  The rest of her assets could be divided between them.  She started on that plan by putting Bob’s name on the title to her house.  She also had Larry looking for a place he might buy as his own.  Predictably, she died before the plan could move forward.

When it came time to deal with her estate, the boys sprung into action, but not in a good way.

Bob claimed to be entitled to the house because he was on title.  Larry was living there.  Bob demanded Larry move out.  Larry demanded that the house be sold.  Bob responded with eviction proceedings.  Larry claimed a bigger share of the estate because he had been “taking care of mom.”  Bob had the locks changed the next time Larry left the house to go on a painting job.  Larry bought a crowbar at Canadian Tire and broke in.  Bob called the police and had Larry led away in handcuffs.  Larry sued Bob for false imprisonment. 

These were two men in their sixties.

The boys managed to spend more than $200,000 in legal fees just getting to court.  Once there, they might have spent the same amount again.  The whole estate, all in, was in the neighborhood of $700,000.  The judge who heard the case said “The depletion of the estate can fairly be described as a tragedy.” 

People like Bob and Larry give estate litigation a bad name.  They acted like ten-year olds.  They litigated with a “scorched earth” approach, and sucked up eleven days of trial with frivolous and far-fetched claims and counter-claims.

The Judge added the house back into the estate.  All of the claims and cross-claims were thrown out.  What was left of the estate was then divided equally.

Sometimes people need to go to court over an estate.  Sometimes it is reasonable to do so.  Before going there, good lawyers are often able to help prospective litigants settle the case.  Settlement is vastly preferable to throwing money in the fire box and steaming to court. 

Bob and Larry did not buy in to that idea however.

This story is a real one.  The facts were taken from the published and publically available decision of the judge who heard the case.  The names have been changed to save the boys further embarrassment.

Next month’s column:  Dynasty trusts as a tool for the wealthy.

John Poyser practices as a wills and estate lawyer with The Wealth and Estate Law Group (Alberta). A former chair of the Wills, Estates and Trusts Section of the Canadian Bar Association, he co-authors a textbook for lawyers and accountants on trust and estate taxation.  Contact him at (403) 613-2128 or jpoyser@welglawyers.ca , or visit www.welglawyers.ca

© John E. S. Poyser 2009.

This article was current when it was written.  No effort has been made to update it.  It is not a replacement for legal advice.

 

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A “Two-Barrel” Cottage Trust

Mary has the most beautiful cottage in the world. On a lakefront in British Columbia, it sits high on a hillside, jutting up out of the trees and into the breeze. The back porch is screened in from from floor to ceiling on three sides and fresh air pours though. The cottage has an island kitchen with a gas stove, and three fireplaces. Her best friends own the cottage next door. It is the most beautiful cottage in the world and Mary will tell you so. So will her three kids, seven grandkids and, if they could talk yet, her two greatgrandkids.

Mary is in her 80’s and wants the cottage to be kept in the family after she is gone. So do her children. She just signed a will containing the terms of carefully considered cottage trust.

Who will make decisions? Mary’s three kids will be the trustees after she is gone and will make decisions jointly, majority rules. If one of them dies, each of the three lines of the family will remain entitled to appoint one trustee. A clause in the trust allows them to appoint and remove a “cottage manager“ from time to time to handle day to day decision making around maintenance and the like. They can rotate that job.

Each of her three children will start out with an equal percentage interest in the cottage of 33.3%. If they die, their percentage interest automatically passes to their children in equal shares. Thus, when her eldest boy dies, his 33.3% will pass in equal shares to his two kids, Ryan and little Emma (who bears a striking resemblance to Mary). Emma will have an interest of 16.66%. In turn, Emma’s percentage interest would pass to her children at her death, or to her brother if she has none. If Emma were to pass away without children, her interest automatically gos to her siblings.

How is time at the cottage divied out? If little Emma has a 16.66% interest in the cottage, she will be entitled to use the cottage 16.66% of the time.

What if Emma moves permanently to France? The trust allows family members to sell their percentages to other family members, but only to family members. Transfers to people like boyfriends or strangers are prohibited. Only Mary’s lineal descendants will be able to have an interest in the family cottage.

What if Emma wants out and can’t find a buyer among the family? The trust allows her to demand an exit payment. The payment will be based on her percentage interest, but a significant discount is applied – she gets less than fair market value. Nothing is payable for a whole year, and then the discounted amount is paid out over ten years of monthly installments, and all without interest. Departure is possible, but penalized. Loyalty is rewarded.

Where does the cash come from? In addition to putting the cottage into the trust at her death, Mary’s will sets up a $500,000 maintenance fund in a second trust. It will be used to fund exit amounts, utilities, realty taxes, repairs and the capital gains taxes payable every 21 years in this type of trust.

Can the cottage be sold? Yes, by unanimous vote of the cottage trustees. The cash will be divied out by percentage interest: bigger percentage, bigger cut.

How long can the trust last? If in Manitoba or Saskatchewan, the trust could be structured to go on forever. The laws in British Columbia cap the duration of the trust to no more than 120 years or so – long enough.

The cottage trust goes on for pages. Mechanisms to avoid capital gains taxes? Covered. Raising additional money? Covered. Renting the cottage to the public? Covered. Creditor proofing? Covered. Probate avoidance? Covered. Resolving disputes? Covered. Scheduling? Covered.

Some of Mary’s acquaintances were nay sayers, “the kids will fight if you try that, better to sell it.“ Mary understands the risk, but hopes the carefully constructed trust will minimize it. She also understands the reward. Her grandchildren know each other. They play monopoly together on the porch. The cottage is a family gathering place, a unique opportunity to keep her extended family close knit after she is gone in a world where that is becoming more and more rare. When she was a little girl, her family, with all of the aunts, uncles and cousins, gathered regularly at the family farm. The farm is long gone. The cottage is not.

No one knows what the future will hold after Mary is gone. The trust provides the real possibility that the cottage will stay in the family and bind it together for future generations.

Mary is real, but details have been changed to preserve her privacy.

John Poyser practices as a wills and estate lawyer with The Wealth and Estate Law Group (Alberta). A former chair of the Wills, Estates and Trusts Section of the Canadian Bar Association, he co-authors a textbook for lawyers and accountants on trust and estate taxation. Contact him at (403) 613-2128 or jpoyser@welglawyers.ca , or visit www.welglawyers.ca

© John E. S. Poyser 2009.

This article was current when it was written. No effort has been made to update it. It is not a replacement for legal advice.

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Protecting the Elderly from Testamentary Predators

Mr. Pendock Barry lived in England in the mid 1800s. He was wealthy. He was also eccentric.

Those who knew Pendock described him as “childish in his amusements and occupations.” That was an understatement. He would have his servants prepare a coach, without horses, and climb aboard with a whip and pretend to be driving a team of horses. More strangely, and more upsetting to the help, he was fond of putting on boots and spurs, having a saddle strapped on to the back of one of his men, and then climbing on top of him and pretend to be riding. Truth is stranger than fiction.

Pendock managed to get married. He had one child, a son, and named him Barry, making his son “Mr. Barry Barry.” Father and son were estranged. No surprise.

As Pendock aged, it came time for him to make his last will and testament. His wife predeceased him. Barry Barry never came to see him. He signed a will that divided his estate among his lawyer, his butler, his housekeeper, and a medical attendant. The lawyer who prepared the will was the lawyer who inherited under it. That raised eyebrows when Pendock passed away.

Barry Barry must have been beside himself when he discovered he had been disinherited. He challenged the will in court, alleging that his father was soft in the head and that the lawyer took advantage of him.

The judge who heard the case must have had a field day. Witness after witness described the odd goings-on at the deceased’s country estate. After all was said and done, the judge decided that Pendock’s will was valid. Eccentricity is not insanity. If Barry Barry wanted to inherit, he should have visited more often.

While the lawyer’s conduct looked mercenary at first blush, the judge was convinced that the deceased truly understood what he was doing when he signed the will. The will was Pendock’s final eccentric act, but he really did want to give his wealth to his servants and lawyer.

Why should we care? The judge who heard the case developed a principle that is still used today to protect the elderly and infirm.

Lonely, old, and wealthy is a powerful recipe to attract predators. We all know an aunt, uncle, neighbor, or elderly friend who fits the bill. The predator worms into the life of the person who is the target, and convinces the target to make a new will. The will leaves a substantial bequest to the predator. It can be the whole of the estate or part of it. Regardless, the bequest to the predator is to the expense of the family or others who would otherwise hope or expect to inherit.

The predator often writes up the will for the target, or buys a will-kit. Sometimes, the predator arranges for a lawyer, drives the target to the lawyer’s office, and tries to sit through the meeting.

Predators come in different stripes and colours. It can even be the target’s child. It is not uncommon to see an effort by a son or daughter to convince an elderly parent to exclude siblings, or make an “extra” bequest for the predator.

How does the court stop them? Where presented with a bequest that looks predatory, the court demands that the predator give evidence removing all suspicion surrounding the preparation of the will. Proof removing that suspicion is required before the bequest to the alleged predator will be allowed to stand. That is the principle from the Barry case.

It does not matter if the will-maker had his or her marbles. This has nothing to do with mental capacity. The real issue is whether the will-maker really and truly understood what they were doing when they signed the will conferring the suspicious bequest on the person who caused the will to come into existence.

The court will sometimes demand actual proof that the will was explained, carefully, and clause by clause. The court will sometimes demand proof that the will-maker understood the size of the bequest, and the percentage of the overall wealth it comprised.

In the right case, those demands can amount to an insurmountable legal hurdle for the predator. Unfortunately, families and other thwarted heirs often take this kind of thing sitting down. The will is not challenged and the predator inherits.

Can you convince someone to leave you his or her estate? It will always depend on the facts of the case. Courts offer some protection from predators, but also support the right of the elderly and infirm to make new wills, even while suffering from diminishing mental capacity. There is nothing illegal about persuading someone to leave you his or her estate, so long as you are fair about it and your benefactor is able to make an informed and voluntary decision.

John Poyser practices as a wills and estate lawyer with The Wealth and Estate Law Group (Alberta). A former chair of the Wills, Estates and Trusts Section of the Canadian Bar Association, he co-authors a textbook for lawyers and accountants on trust and estate taxation. Contact him at (403) 613-2128 or jpoyser@welglawyers.ca , or visit www.welglawyers.ca

© John E. S. Poyser 2009.

This article was current when it was written. No effort has been made to update it. It is not a replacement for legal advice.

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Creating A War-Chest To Deal With Custody

When Mary divorced she worked hard to limit contact between her ex-husband and the children. It was her heartfelt belief that it was not in their best interests to spend extended periods of time with their father.

Her ex-husband did not push the issue during the divorce. If he had, Mary had been prepared to fight him. She stayed soft on the child support issues and everything was resolved, not amicably but without a fight. He was to see the children three days every two weeks, and never overnight.

The ink was barely dry on the court order when Mary was diagnosed with cancer.

Everyone is afraid of dying. Mary was too. She was also afraid that her ex-husband would try to take over full custody of the children and have them live with him in the back room of a beer parlour after she died.

What could she do? There are a series of steps that Mary, or others in her situation, might consider.

First of all, she needs to have a will. That will needs to include a clause appointing a “testamentary guardian.” That is a person she designates as being the best substitute parent for the children if she passes away.

Mary picked her sister, Jane. That type of designation is not binding. Jane still needs to step forward to the courts after Mary’s death and seek a formal order of guardianship over the children. The fact that Mary picked Jane does not end the matter, and her ex-husband is free to contest the guardianship application.

What else can she do? Some parents include a “war-chest clause” in their will. It is a provision that authorizes the testamentary guardian to hire a lawyer to fight the guardianship as a contest in the courts, and provides that the estate is to pay all of the legal fees incurred. Lawyers are expensive, particularly experienced ones. The idea is to ensure that Jane has all of the legal horsepower money can buy in her bid to successfully secure guardianship of the children.

It is also possible to prepare a letter for Jane to be opened only if the fight over guardianship does in fact occur. That letter contains a description of all of the reasons why the father might be a bad or dangerous influence over the children. It also leads Jane to the evidence that is available on each point. It gives the names, addresses, and telephone number of witnesses who can testify, if need arises, in substantiating Mary’s concerns about her ex-husband. The letter may not be admissible in court. The idea is not to give testimony from the grave, but to give Jane ammunition to use in the court case.

If Mary’s concerns run deep enough, she can take an additional step. She can have a lawyer draft a statutory declaration in which she states all of her concerns under oath in writing, sworn before a commissioner for oaths or notary public. A court is more likely to allow a statutory declaration to go into evidence but there is still no guarantee. Mary’s ability to give evidence likely ends when she does.

Most of these measures are put to paper in documents outside of the will. The will becomes a public document. There is no need to embarrass the ex-husband, unless he actually contests the guardianship application. The children do not need to have their mother wash dirty laundry in a document that will be given to them when they attain the age of majority.

These are also steps not to be taken lightly. A legacy of litigation can poison children as surely as lead. At the same time, some parents, like Mary, genuinely believe the possibility of protracted litigation is the lesser of two evils. They cautiously and carefully build the protective measures described above.

What will the court eventually do if Mary dies and the fight finds its way before a judge? That is impossible to say. This is not about guaranteeing a result — it is about guaranteeing a process. The court might give posthumous validation to Mary’s concerns. On the other hand, the court might feel those concerns to have been overblown and give the children to their father. The court will be governed by the best interests of the children. In the end, nothing else counts.

Mary is not a real person. Her story takes details from several clients who have been in the same position as Mary and taken some or all of the steps described above in a bid to protect their children.

John Poyser practices as a wills and estate lawyer with The Wealth and Estate Law Group (Alberta). A former chair of the Wills, Estates and Trusts Section of the Canadian Bar Association, he co-authors a textbook for lawyers and accountants on trust and estate taxation. Contact him at (403) 613-2128 or jpoyser@welglawyers.ca , or visit www.welglawyers.ca

© John E. S. Poyser 2009.

This article was current when it was written. No effort has been made to update it. It is not a replacement for legal advice.

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Right Will for Wrong Reasons

Elizabeth Amelia Brown was widowed in 1919. Her dead husband had been wealthy, and his will gave her access to his family fortune. She would be comfortable for life. She was also put in a position where she would decide who would get the family fortune when she died. There would be lots of money left over. They had no children.

Her husband left her with guidance. He had been very fond of his sister, and two of his grandnieces. He left a message for his wife in the text of his will telling her to take care of them after he was gone, and asking her to make sure that when she died the family fortune would go to those family members.

Elizabeth signed a will of her own the year after her husband died. That first will followed his wishes and gave the balance of the family fortune to his sister and grandneices, as suggested.

Over the years that followed, she became increasingly annoyed with her dead husband and his family. She made a new will in 1927. It gave everything, including her husband’s family fortune, to her own family, not his. Her second will flew in the face of her dead husband’s wishes.

The lawyer who helped her with her second will told her that she was morally but not legally bound by the wishes of her dead husband. He said the second will was “very wrong.” Elizabeth told him to mind his own business.

Her mental health was fine at the time of the first will, and was fine at the time of the second will. It began to deteriorate after wards however. She became depressed. She suffered breaks with reality. She committed herself to a mental health facility in British Columbia in July of 1929.

She told the staff that someone was introducing poison gas into her room. She was also worried about poison powder. She complained that she was hearing voices from the grave.

She was also stricken with the pangs of a guilty conscience. She came to believe that the second will that left everything to her own family was a terrible mistake. She felt horrible for disregarding her dead husband’s wishes.

In November of 1929, four months after she went into the mental facility, Elizabeth called for the lawyer. She told him she wanted to make things right and do a third will that left everything to her dead husband’s grandnieces. The new will was exactly what her dead husband had instructed her to do. His sister had since passed away.

She also told the lawyer about poison and the voices from the grave. She hoped the voices from the grave would stop and she would feel better if she did the right thing by making a new will.

The third will was prepared and signed. We do not know whether the voices stopped. We do know that Elizabeth lived on for another fourteen years, never leaving the mental facility, before dying in 1943.

Elizabeth’s family challenged the third will, hoping to have a judge overturn it in court. They said that the third will was only done because she heard voices from the grave. If successful in knocking down the third will, the second will would stand. It left everything to them.

The grandnieces fought them. They told the judge that the third will was just and proper, and should stand. It was what their dead great uncle had wanted for his wealth.

Everyone knew that that third and final will was a good will. It gave effect to a moral obligation to leave the husband’s wealth to his own family. They also knew that Elizabeth had been living in a world tormented by voices from the grave. Without the dead spirits she might never have changed her will. Can a person do aright will for the wrong reasons?

The two families fought their way through the British Columbia Court of Queen’s Bench, and the Court of Appeal, before the Supreme Court of Canada made a final decision in the case in 1946.

The Supreme Court said that you cannot do a valid will driven by a delusion. Even if it is a fit and just will, it will be struck down if the content is being dictated to you by voices from the grave, or aliens, or the Queen of England.

Nevertheless, the Supreme Court let Elizabeth’s third will stand. The grandnieces inherited the family fortune. Elizabeth’s family lost. The court achieved that result because it concluded that it was Elizabeth’s guilty conscience that had forced her to do the third will, not the ghostly voices from the grave.

John Poyser practices as a wills and estate lawyer with The Wealth and Estate Law Group (Alberta). A former chair of the Wills, Estates and Trusts Section of the Canadian Bar Association, he co-authors a textbook for lawyers and accountants on trust and estate taxation. Contact him at (403) 613-2128 or jpoyser@welglawyers.ca , or visit www.welglawyers.ca

© John E. S. Poyser 2009.

This article was current when it was written. No effort has been made to update it. It is not a replacement for legal advice.

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