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.

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