Jeff Nelson had a responsible position with the police department. He had a daughter, named Karen, before separating from his wife in 1980. Jeff never remarried. Karen was his only child.

The divorce that followed was not amicable. He had access rights, but visits were strained. After Karen turned 19 she saw little of her father over the decade that followed.

He may have been estranged from his daughter, but he was close to his sister. He saw his sister each Christmas, and on summer vacations. They visited regularly, and talked on the phone weekly. For all intents and purposes, his sister was his only family.

Jeff turned his mind to estate planning in 2003. Not surprisingly, he made his sister his sole heir at the time. His chief assets were a life insurance policy and a pension plan. He signed a beneficiary designation that named his sister as the beneficiary under his life insurance policy. That meant that the cash payment under the policy would go to his sister upon his death.

He took ill in July of 2004. His sister grew worried, and came to visit him, discovering her brother could not eat, or even hold a plate. She took him home, installed him in her guest room, and arranged to take him to the doctor.

A CAT scan revealed that Jeff had cancer in both his lungs and brain. He was given two weeks to live and admitted into hospital.

Jeff signed a power of attorney while he was in the hospital appointing his sister to handle his financial affairs– a detail that would later haunt her.

Jeff’s sister contacted Karen, his daughter, and brought her to the hospital. After years without any form of relationship, Jeff and Karen put aside their differences. Father and daughter were reconciled. Terminal illness will often do that.

Jeff enjoyed a brief period of remission. He left the hospital on September 28th 2004 and went back home. The doctors now gave him three to six months to live.

After he left the hospital, he discovered that his sister had withdrawn a total of $4,375.91 from his bank accounts. Rightfully or wrongfully, he concluded that his sister had been stealing from him. He was sick and may not have been thinking clearly. Unfortunately, terminal illness will also do that as well.

His sister denied any wrongdoing. Jeff was not convinced. He wanted the police to charge her with theft.

Jeff decided to disinherit his sister. He signed a new will, leaving everything to his daughter Karen. He signed papers to make the death benefit on his pension pay out to Karen. It is absolutely clear that he intended to have all of his wealth go to his daughter at his death and have none of it go to his sister.

He missed his life insurance. It was still payable to his sister. To change that he would need to sign a beneficiary designation appointing his daughter as the beneficiary under the policy. That did not happen.

Jeff Nelson died on December 28, 2004 at the age of 51, three days after Christmas and four months after being told he had two weeks to live.

The life insurance company gave his sister a cheque for $90,386.03. His daughter sued and claimed that money as her father’s sole intended heir.

The court sided with the sister. Since Jeff had not signed a new beneficiary designation in favour of his daughter Karen, the old one in favour of his sister still governed. Case closed.

In a lot of ways, Jeff’s story is a sad one. It culminated with a sad little estate planning error. It is surprising how often life insurance goes to the wrong person. It falls through the cracks during estate planning.

This frequently happens after a divorce. The divorced person dies and only then is it discovered that they never thought to change the beneficiary under their life insurance. It goes to their ex-spouse. Sometimes that is OK. More often than not, however, it is absolutely not what the deceased would have intended — you can imagine them spinning in their grave.

Life insurance is flexible. It is easy to change a beneficiary designation. It can be done on a form provided by the insurance company. It can be done in the body of a will. It can be done less formally, with a pen on a piece of note paper. It just has to be done.

Is the beneficiary designation under your life insurance policy up to date?

Jeff’s story is real, taken from the published decision of the court that heard the dispute. Names and some details have been changed to save the family embarrassment.

Next week’s column: More about life insurance.

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.

Walter McMann was born in 1908. He married at age 18 and had four children with his wife.

The couple led a perfectly normal married life until Walter deserted his wife without warning or explanation during a family vacation in 1944. The two never met again.

Walter moved in with his parents. He started to express strange ideas about his wife, and eventually found himself under psychiatric care for depression.

He told his doctors that his wife was “weakening his muscles with hypnotism,” and “using mesmerism against him,” and that she was able to “project electricity into his body.” He accused her of bizarre sexual excess. None of it was true.

It reached the point where the mere mention of her name would cause him to suffer abdominal pain and throw up.

Walter’s condition deteriorated further. He attempted suicide. He became violent. Finally, his parents became so concerned that they had him committed to a provincial psychiatric hospital in April 1946. Three psychiatrists diagnosed him as suffering from paranoid delusions.

He was released from hospital after two years but the delusions directed towards his wife persevered. He was told to keep away from her.

While Walter was unlucky at love, he had a magic touch with the stock market. At the same time as he started to develop and display his wacky ideas about his wife, he developed a singular success in picking stocks that increased in value. He never abandoned his off-kilter ideas relating to his wife. He also grew wealthy.

He hired a lawyer on January 25, 1949 to help him draw a will. Walter told the lawyer he wanted to leave his estranged wife the smallest possible inheritance permissible under the law. The lawyer told Walter that he was forced to give his wife one-third of the estate, and Walter did. He believed his children were in cahoots with his wife, and gave each of them a paltry cash inheritance under the will. Two thirds of his wealth was left to charity.

Six years after he signed his will, Walter died at the age of 46 years while living in Calgary.

The charity was happy at the prospect of inheriting Walter’s money. His family was less than happy to see the money go. They applied to court to have the will overturned on the grounds that Walter was mentally ill and lacked the capacity to plan and sign a will.

A person can suffer from delusions and still be able to write a valid will. Crazy ideas are only a problem if they amount, in legal parlance, to an “insane delusion.”

An insane delusion is an ongoing and mistaken belief that perverts a person’s normal sense of who should inherit from them. Thus, if you believe that your wife and children are trying to kill you, but leave them your entire estate – no problem. If you exclude them from inheriting, and are motivated to do so by the insane delusion, then the will can be set aside.

The court held that the content of Walter’s will was inextricably perverted by the delusions he suffered. The will was overturned and his wife and children inherited the whole of his estate. It amounted to more than a million dollars in today’s terms.

Although Walter’s last name has been changed in this article, his story is a real one. The details are from the published decision of the court that overturned the will.

Mistakenly believe that aliens are among us and taking over? — No problem. Believe that aliens are telling you to give your estate to alien-overlord Brad Pitt? – Problem. Mistakenly believe you are Queen Elizabeth? – No problem. Decide to leave half of your estate to Prince Harry? – Problem.

Walter’s situation is rare. After limiting my practice exclusively to estate planning for several years, I have yet to be asked to write a will for a delusional client. The law is clear however. To make a valid will, you have to know the nature and extent of your assets, the persons in your life who might expect to receive them, and understand what a will is and does. If you can hold all of that rationally in mind, your estate plan will generally withstand challenge. That remains true even if you think you are a twelve foot purple chicken — just leave your estate to your chicks.

Next week’s column: Predatory marriages.

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.

Mr. Smith met and married Mrs. Smith later in his life. He was wealthy by most standards, and she enjoyed a good life at his side. The two of them shared a common commitment to charity.

Mr. Smith passed away first and his wealth was set aside into a spousal trust under the terms of his last will and testament. That means it was held by trustees and Mrs. Smith was entitled to the generous income it generated each year. She also benefited from the preferential tax treatment afforded to spousal trusts. Upon her eventual death, the wealth would be given to the charities that Mr. and Mrs. Smith had supported together during their salad years. That suited Mrs. Smith fine.

Trouble was brewing. It boiled over when her memory began to fail and she lost the ability to handle her own affairs. Her children stepped in and took over under a power of attorney she had signed.

Her children did not like Mr. Smith’s will one bit. While their mother enjoyed the income, all of the wealth was ultimately aimed at charity.

The kids sued Mr. Smith’s estate demanding a money judgment for their mother. If successful, they would pull a few hundred thousand dollars, or hopefully a million or two, from the estate and into their mother’s direct ownership. Where would it go from there? Her will left everything to them, not to charity.

Mrs. Smith had shown no inclination to attack Mr. Smith’s estate by making such a claim. Her children were in charge now, not her.

The children lost the court case on a technicality. The claim was brought too late. Otherwise, they might well have succeeded. The details of this story are taken from the court’s written judgment (the names have been changed and some of the facts altered to prevent embarrassment).

Many families rely on good faith to protect their estate plans. They look across the table at each other and promise not to challenge each other’s estates. Unfortunately, that promise is worth the paper it is written on – nothing. The surviving spouse is generally free to change his or her mind later. In other cases, like that of the Smiths, it is the kids who ultimately call the shots, not the parents. The children know nothing of the promise or understanding between the parties, or just get plain greedy.

If Mr. and Mrs. Smith were serious about leaving the wealth to charity, they had a series of options. First, they could have had a lawyer prepare a simple piece of paper. Called a quit claim deed or release, Mrs. Smith would have signed it and thereby formalized an enforceable promise not to bring any form of claim against her husband’s estate.

Properly drafted, that piece of paper is helpful. It would extinguish at least some of the claims she might have against Mr. Smith’s estate. The quit claim deed would not protect the estate from claims under dependants’ relief legislation. A dependants’ relief claim cannot be signed away.

There are other ways to plan around dependants’ relief claims if a couple wants things to be utterly ironclad.

A common strategy involves setting up a “joint spousal trust.” This is only available if Mr. Smith is over the age of 65. He would sign a trust declaration and transfer most of his assets into the trust. Structured properly, there would be no need to pay capital gains taxes when his assets are transferred into the trust. RRIF’s have to be excluded unless Mr. Smith wants a nasty tax bill. Income generated on assets in the trust would be available to the couple for their support and benefit. Mr. Smith could access capital if need arises. When he dies, the assets in the trust would not form part of his estate. Since the assets are outside of the estate, they escape the reach of the children if they try to pursue a dependants’ relief claim on behalf of their mother. Voila.

After the second member of the couple passed away, then the money and other assets in the trust would be distributed to charity. Careful drafting is required on that point. Many trusts are constructed in a way that denies the family the ability to claim tax relief for the assets going to charity, effectively ripping up the donation receipt.

Joint partner trusts are also used to avoid probate taxes on land outside of Alberta, to avoid general creditors, and to allow for assets to pass to heirs outside of the public eye.

A joint partner trust is only one of many tools used in blended family estate planning. At death, a surprising number of blended families descend into acrimony, greed and fighting. Few couples take any reasonable steps to prevent it.

Next week’s column: More fun with blended families.

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.

George Bernhard Shaw was born in Dublin in 1856 and became one of the most influential men of his generation. He was an author, an orator, and a social activist. Among other causes, he supported woman’s rights before it was popular to do so. The English language was the tool of his trade. He studied phonetics and campaigned for the reform of the alphabet. He won the Nobel Prize for literature in 1925 — he accepted the honour but turned down the money.

He is chiefly remembered today as an author, having penned hundreds of books, plays and articles. His most popular play during his lifetime was Pygmalion. First staged in 1914, the main character was a professor of phonetics. It eventually became a Hollywood movie, and kept on grinding out royalties on the stage and screen decade after decade with a seemingly inexhaustible staying power. We now know it as My Fair Lady.

George Bernard Shaw was also the author of a unique last will and testament.

He wrote it with great care and attention, and signed it in 1950 just prior to falling to his death from a ladder. He had been trimming a tree at his country home just outside of London. He was ninety-four at the time.

The will left his fortune in a trust designed by Shaw in the hope it would revolutionize the English language. His money was to be used to develop and popularize a new alphabet. The new alphabet was to consist of forty or more letters, and was to replace the existing alphabet consisting of twenty- six letters. Each letter in the new alphabet would have its own sound. Gone would be “sent” and “scent” and “cent.” It would no longer be necessary to combine letters into pairs to make different sounds. The sound “th” would be represented with a single letter.

Shaw’s will directed his trustees to finance a series of enquires to determine how much time could be saved by the use of a more efficient alphabet, and to quantify the economic value of the time savings in British and American currency.

He wanted to prove to the world that an improved alphabet would improve the economy. If this document were written in the new alphabet, without blended letters like “th” and “sh,” it might be one or two percent shorter. With millions and millions of documents generated every day using the English language, imagine the savings in time, paper, storage space and transmission time if every one of them was two percent shorter. He also thought it would be easier and quicker for business people to learn and speak English if each letter hasits own distinct sound.

Shaw was not a crackpot. He was a free thinker, and he thought big.

The first problem in his plans was this. His estate had no money. Debts and other obligations left his estate without the financial resources to begin the gargantuan tasks Shaw had directed in the will. Pygmalion came to the rescue. Royalties kept on pouring in. In short order the estate had the wealth available to give effect to his wishes.

The second problem was this. He mucked around and tried to draft the will himself. The first draft appeared to have been done by a legal draftsperson, but Shaw then elaborated on it with his own pen. The judge who came to read the will described it as a “literary masterpiece,” but it was legal garbage. The will was invalid.

His money was eventually divided among the National Gallery of Ireland, the British Museum, and the Royal Academy of Dramatic Art, being other beneficiaries that had been mentioned in Shaw’s will. Royalties from his works have continued to pour into the coffers of those organizations ever since.

There is a practical lesson here. George Bernhard Shaw should have used a lawyer to draft the final version of his will. It was technical work, and had to be done right. The danger of doing it yourself is magnified a hundred-fold when a person’s plans are ambitious or unique, or when their estate is large. A will kit might be an improvement over drafting your own will from scratch, but the kits are far from foolproof. My law firm has litigated more than one will kit fiasco.

Shaw, like Alfred Nobel described in an earlier column, was penny wise and pound foolish. If he had hired a lawyer, and spent some money, his wishes for the English language might have come to fruition (and this column would be two percent shorter).

Next week’s column: Strategies to reduce income taxes for heirs.

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.

Bob and Sally Smith appointed each other to serve as the executor of each others estate. What happens if both of them die? They have appointed their daughter, Anna, to serve as the alternate executor. It will be her job to divide the estate between her and her brother.

Anna is exactly the right choice for the Smith family as alternate executor. She lives close to them. She has the time. She is responsible. Her brother would have been good for the job too, but he lives in Vancouver and is really busy.

Who should you appoint as executor of your estate?

Most people pick a family member, such as a son or sister. Other people pick friends, or close business associates. Some ask a professional advisor, such as family lawyer or accountant. Still others pick a trust company.

There are advantages to picking a family member. A spouse, child, brother, or other family member will know your affairs. They can clean out your house and identify family heirlooms. If they are a beneficiary, then they are interested in the outcome. They want to get the money out of the estate as quickly as everyone else does.

A family member may not be a good choice if your affairs are complex and he or she will not have the skills for the job. That might be the case if you have a business, or if the family members available to you are young and inexperienced. A family member may be a poor choice if you see the possibility of a fight among the beneficiaries of the estate.

Should the executor live in the same city as you do? It is generally more convenient. There can be a lot of legwork. An executor who lives outside of Alberta may have to fly in and out more than once. Appointing an out-of-province executor can be more than simply inconvenient. The executor will be forced to post a bond unless the court can be convinced to make an exception. That bond is usually placed through an insurance company. It can get very expensive. That by itself is a good reason to pass over someone outside of Alberta.

Appointing an executor from a different country is more trouble still. As a rule, an estate is tax resident wherever the executor happens to reside. If you appoint a child who lives in the US to be your executor, your estate will be governed by US income tax laws. That can be a huge complication.

Inside of Canada, that same rule can work to your advantage. If you pick a child who lives in Alberta, then any income earned on estate assets will be taxed in Alberta under lower tax rates. If you pick a child in another province then income on your estate will be taxed at higher rates in that other province. For some estates, the tax savings can be significant.

You can appoint joint executors to serve together or a single executor to serve alone. Which is better? If one person has all of the skills, then one person alone is generally a good idea. Having two executors doing everything together doubles the work.

Sometimes a team does make better sense. Different people bring different strengths to the job. One might know your business affairs and the other your personal affairs. Together, they can do a better job.

Every executor is entitled to a fee. Family members tend to charge less. Friends and extended family tend to charge more. Trust companies and professional advisors tend to charge the most. You may want to give some thought to setting the amount of the fee in the will itself, or by advance written agreement with the executor. That avoids fights.

Fifty years ago, it was quite common to appoint the family lawyer to serve as an executor of the estate. Things have changed. Most lawyers will now refuse the job if you ask them. Professional advisors are often too busy, and it is not their normal work.

Trust companies are a popular choice. They have professionals on staff that do nothing but administer estates. They are good at it. A trust company will charge significant fees, but you generally get what you pay for in this world.

A trust company is an option only if your estate is going to be fairly substantial. Many trust companies will not agree to serve as executor unless the estate is projected to exceed $500,000.

The Smith family is real. Names were changed to protect confidentiality.

Next week’s column: An estate plan gone wrong.

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.