“Except when a contrary intention appears by the will, property or an interest therein that is comprised or intended to be comprised in a devise or bequest that fails or becomes void by reason of,

a)    the death of the devisee or donee in the lifetime of the testator; or

b)    the devise or bequest being disclaimed or being contrary to law or otherwise incapable of taking effect,

is included in the residuary devise or bequest, if any, contained in the will”.

Therefore, this section provides direction when a lapsed gift arises.  If the beneficiary predeceases the testator, or, the bequest is disclaimed by the beneficiary, unless a contrary provision in the testamentary document provides otherwise, the bequest falls into the residue of the deceased’s estate. No distinction is made between gifts of personal or real property.

There are exceptions to this rule, including the application of the cy-pres doctrine, blogged about here, as well as exceptions under the common law, including: gifts passing under a joint tenancy; or property given to a group (class) of persons. 

Exceptions can also be found under statute, one of which being s. 31 of the SLRA, often referred to as the anti-lapse provision.  Section 31 states:

Except when a contrary intention appears by the will, where a devise or bequest is made to a child, grandchild, brother or sister of the testator who dies before the testator, either before or after the testator makes his or her will, and leaves a spouse or issue surviving the testator, the devise or bequest does not lapse but takes effect as if it had been made directly to the persons among whom and in the shares in which the estate of that person would have been divisible,

a)    if that person had died immediately after the death of the testator;

b)    if that person had died intestate;

c)    if that person had died without debts; and

d)    if section 45 [preferential share of spouse] had not been passed.

One of the effects of s. 31 is to ensure that gifts made to certain close relatives, the most common type of legacy or devise, do not fail, but instead pass to the next-of-kin of the predeceased.  As the SLRA suggests, three criteria must be met in order for the anti-lapse provision to apply.  They include: (i) there is no contrary intention in the will; (ii) the devise or bequest is made to a child, grandchild, brother or sister of the testator; and (iii) the donee was survived by a spouse, or issue, who also survived the testator (both spouse and issue are defined in s. 1(1) of the SLRA).

If the anti-lapse provision does not apply, and the bequest is residuary in nature, an intestacy arises.  This is despite the ‘golden rule’ that the courts do not favour an intestacy: see Lord Esher M.R. in Re Harrison (1885), 30 Ch.D 390.  However, not everyone views such a rule as golden.  In Kilby et al. v. Meyers et. al.,  Ritchie J. states, “The inclination of courts to lean against a construction which will result in intestacy is far from being a rule of universal application and is not to be followed if the circumstances of the case and the language of the will are such as to clearly indicate the testator’s intention to leave his property or some part of it undisposed of upon the happening of certain events”.

Ian M. Hull

The facts of the case were as follows:

Lori Love and Dennis Love were married October 9, 1976.  They had four children.  In 1999, Dennis designated Lori as the beneficiary of a life insurance policy worth $135,000.00.  Lori and Dennis divorced in 2006. 

On March 8, 2006 Dennis sent an e-mail to his employer’s HR department.  The subject line of the e-mail was “Change of Beneficiary”.  The e-mail contained the following communication:

“Due to my recent divorce I would like to change the beneficiary on my pension etc.  (from my former wife to my son).  Can you provide me with what ever paper work is required and I will fill them out and return them to you.  Thanks.”

The HR Manager forwarded a Group Coverage Change Form (“the change form”) to Dennis.  She did not discuss with Dennis the procedures or the importance of signing, dating and completing the form.  The change form was found in Dennis’ file after his death and it was only partially completed. 

Dennis died intestate on February 22, 2009.  A legal battle ensued over the life insurance proceeds.  The key issue before the Court was whether Dennis effectively changed the designated beneficiary on his life insurance policy in accordance with the Insurance Act. 

The relevant provisions of the Insurance Act are:

152(2) Subject to section 153 [deals with irrevocable designations], the insured may alter or revoke the designation by a declaration.

 

The term ‘declaration’ is defined as follows:

 

133… (e) “declaration” means an instrument signed by the insured:

 

(i) with respect to which an endorsement is made on the policy; or

(ii) that identifies the contract; or

(iii) that describes the insurance or insurance fund or a part thereof;

in which he designates, or alters or revokes the designation of, his personal representative or a beneficiary as one to whom or for whose benefit insurance money is to be payable.

The Court then considered the following provisions of Saskatchewan's Electronic Information and Documents Act, 2000:

  3… (b) "electronic signature" means information in electronic form that a person has created or adopted in order to sign a document and that is in, attached to or associated with the document;

4(1) This Part does not apply to:

(a) wills...

(c) trusts created by wills;

(d) powers of attorney...

(e) documents that create or transfer interests in land and that require registration to be effective against third parties; or

(f) any other provisions, requirements, information or documents prescribed in the regulations.

14(1) A requirement pursuant to any law for the signature of a person is satisfied by an electronic signature.  

In Ontario, we have a similar act called the Electronic Commerce Act, 2000.

The Court found that Dennis' email could be considered a document signed by him.  It then went on to examine the effect of what was said in the email.

The Court quoted the following statement made in Norwood on Life Insurance Law in Canada:

...and the fact that an insured may write to the insurer mentioning a particular person and asking for a beneficiary declaration form may not be considered as evidence that the insured intended to benefit the person that the insured had in mind, but only as an indication that the insured was contemplating a future designation.

The Court concluded that the email on its own was not a direction within the meaning of the Insurance Act. 

There was a direct reference to Dennis’ pension plan, but there was no reference to the life insurance policy which was the subject of the application. Dennis’ son argued that the word “etc.” should be construed as meaning the life insurance policy but the Court refused to go that far. 

The Court stated that in order to be an effective declaration there must be a clear description of the policy affected and a clear direction with respect to the new beneficiary.  In this case, Dennis just referred to “my son” without naming any one son in particular (he had three sons and one daughter).  The Court said that the email reflected an indication that the Deceased was contemplating a future designation, not an effective declaration of change.

Thanks for reading.

Moira Visoiu - Click here for more information on Moira Visoiu. 

Holly LeValliant - Click here for more information on Holly LeValliant. 

In the case, an ex-wife applied for a declaration that she was the designated beneficiary of her deceased ex-husband’s group life insurance policy. The deceased and his ex-wife were divorced. They had executed a separation agreement in which no mention was made of the deceased’s life insurance policy. Following the divorce, the deceased emailed his insurer to advise that he wished to change the beneficiary of his insurance policy from his ex-wife to his adult son. The subject line of his email was “Change of Beneficiary” and the email stated “Due to my recent divorce I would like to change the beneficiary on my pension etc. (from my former wife to my son.) Can you provide me with what ever paper work is required and I will fill them out and return them to you. Thanks.”  The deceased was subsequently sent the change forms by the insurer. While the deceased partially completed the forms naming one of his three sons as the beneficiary, he did not sign or submit the change forms before his death.  The deceased died intestate. Following his death, both the deceased’s ex-wife and the son named in the partially completed change forms claimed the life insurance proceeds.  

The Court was required to consider whether the deceased’s email was a sufficient declaration within the meaning of s. 133(e) of the Saskatchewan Insurance Act (the “SIA”) to change the beneficiary designation in a life insurance policy. Section 133(e) defines the term “declaration” as follows:

“declaration” means an instrument signed by the insured:
(i)   with respect to which an endorsement is made on the policy; or
(ii)  that identifies the contract; or
(iii) that describes the insurance or insurance fund or a part thereof;
in which he designates, or alters or revokes the designation of, his personal representative or a beneficiary as one to whom or for whose benefit insurance money is to be payable;

Following the decision in Re Buckmeyer Estate, 2008 SKQB 141 (CanLII), the Court held that an email can be considered a document signed by the deceased and that an email can be a sufficient declaration to change the beneficiary designation in a life insurance policy where it meets all of the requirements in s. 133 of the SIA . However, the Court concluded that in the present case the deceased’s email was not a sufficient declaration on the basis that the insurance policy was not described sufficiently clearly and there was no clear direction with respect to new beneficiary. While the deceased’s email included reference to pension plan, no specific reference was made to his group life insurance policy. The Court stated that the use of term “etc.” did not broaden the email to include the life insurance. Additionally, the Court stated that there was no clear direction with respect to a new beneficiary – while the email refers to “his son” it does not name the son in question.  The Court, therefore, concluded that the requirements under s. 133(e) of the SIA were not met and the ex-wife remained the beneficiary.

Thanks for reading,

Saman M. Jaffery

Ever wonder if (or wish that) you might be the lucky beneficiary of a hefty life insurance policy left to you by some benevolent benefactor? Well now you can find out if your wishes have come true. 

A life insurance policy locator service created and maintained by MIB Solutions Inc. allows you to search 170 million records to see who may have named you (or your client) as a beneficiary. The database includes policies collected from virtually every North American carrier involved in life insurance. The hit rate is 30%. An executor, administrator, a surviving spouse or other relative eligible for appointment may be entitled to order the report.  Policy Locator can make it easy to discover life insurance benefits you may not have realized existed.

How to Submit a Request

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2. Include an original death certificate, containing an official seal, with the request form.
3. Include a $75.00 check (payable to MIB Solutions, Inc.) or money order in U.S. currency.
4. Mail the above items to MIB Solutions at the address listed below or supplied on the form.

Your Policy Locator search report and the "Policy Locator Research Primer" will be mailed to you shortly thereafter.

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Good Luck!

Sharon Davis 

Megan F. Connolly 

A testator, for example, may choose to have one child’s portion of the future estate placed into an annuity that will create a flow of money over time. The child would have access to the cash flow, but not necessarily access to the principal amount. 

In September 2008, Gayle Reid applied to the Superior Court of Justice for an interpretation.  The claimant’s father, Bernard Wiesberg, died and left an annuity to his friend, Avonne Richter (also identified as his common-law spouse). Minimum annual payments of the annuity were directed in the Will to Ms. Richter who received them from 2003 through to 2007. 

The Applicant was to receive the residue of her father’s estate.  A 2005 Order by Dandie  J.  required Ms. Richter to designate Ms. Reid as the beneficiary.  (A provision of the Income Tax Act required the beneficiary to be named, otherwise the retirement income fund would have collapsed, defeating the testator's intent.)

The issue arose when Ms. Richter, who received the previous annual annuity payments in arrears up to 2006, chose to take the $17,015.57 payment in January, in advance for that year. Ms. Richter died on April 17, 2007.

The Applicant sought an interpretation of her father’s Will, specifically regarding the annual payments. As the payments were for the “lifetime” of Ms. Richter, the Estate owed $12,027.44 to the Applicant because the Court reasoned that calculations must be made to the date of Ms. Richter’s death. Therefore a pro-rata calculation was “the only reasonable and fair manner to ensure the two gifts in the Will are honoured.”

If the annuity had been paid in arrears that December, Ms. Richter’s Estate would have been owed a pro-rata amount of the annuity for that year calculated to the date of her death.

Have a good day.

Jonathan

When TFSAs were first introduced in the Federal Government’s 2008 budget, there were concerns with how TFSAs would be treated upon the death of the account holder.  TFSAs allow account holders to name a spouse or a common law partner as a “successor account holder” to allow the successor account holder to maintain the TFSA of the deceased without a reduction in their own contributions. Upon death, the value of the TFSA is not included in income but any income that accrues after death is subject to tax.

However, the federal government likely lacks the jurisdiction to give effect to successor account holder designations without also be named in testamentary documents and requiring probate. Beneficiary designations to allow assets to pass outside of probate are within the domain of provincial jurisdiction and the provincial legislation needs to be amended to allow for TFSA designations similar to RRSP beneficiary designations.

Currently, many Ontario financial institutions are providing for both a beneficiary designation and successor account holder be named when a TFSA is opened. The big unanswered question is if probate will be required or if a TFSA is an asset that passes outside of the estate.

Once the issue of beneficiary designations is settled, TFSAs may become another estate planning tool. 

Have a great day,

Diane Vieira

Listen to Guardianship in Canada

This week on Hull on Estate and Succession Planning, Suzana Popovic-Montag speaks with Rodney Hull about how the law has changed in Canada as it pertains to the appointment of guardians. Rodney suggests that today's laws (post-1994) are clearer than they were in the past.

If you have any comments, send us an email at hullandhull@gmail.com or leave a comment on our blog.

Guardianship in Canada - Hull on Estate and Succession Planning - Podcast #142

Posted on December 9, 2008 by Hull & Hull LLP

Welcome to Hull on Estate and Succession Planning, a series of podcasts hosted by Ian Hull and Suzana Popovic-Montag that will provide information and insights into estate planning in Canada. From the offices of Hull & Hull in Toronto, here are Ian and Suzana.

Suzana Popovic-Montag: Hi and welcome to Hull on Estate and Succession Planning. You’re listening, and some of you may be watching, episode 142 of our podcast on Tuesday, December 9^th, 2008.

Hello there Rodney.

Rodney Hull: Hi Suzana.

Suzana Popovic-Montag: I’m very pleased to have Rodney Hull join me again this week to fill in for Ian Hull. We’re very pleased to have you and thank you for joining us, Rodney.

Rodney Hull: Thank you very much for having me.

Suzana Popovic-Montag: What I thought we might do a little bit today, since we have you sort of here in the hot seat is to get your thoughts, and I know we’ve talked a lot in the past about capacity litigation and this whole grey zone as to whether or not someone is capable or incapable and what happens if they’re no longer capable. And so I thought having you here, we’d have the opportunity to maybe talk a little bit about the change in the law since when you started practicing back in 1957 and we still called it like a committeeship, and how things may have changed since 1994 when the new Substitute Decisions Act came into place.

Rodney Hull: Well in the pre-1994 legislation, the first distinction was that they changed the fiduciary, the name of the fiduciary from a committee to what it is today, which is the…

Suzana Popovic-Montag: Guardian.

Rodney Hull: Guardian. And basically though the function of the guardian is the same today as it was then.  There is a far superior structure created by the new Substitute Decisions Act which gives a great deal more guidance to persons involved in committeeships as we used to call them. Before you simply applied, we did the same thing: we had psychiatrists and one would say this and one would say that, we would have doctors, we would have bankers, we would have investment people saying whatever their opinion was, and a committee was appointed for the person if it could be shown that the person was not capable of managing his or her affairs. Now it’s exactly the same but we have guidelines, much more direct, clear guidelines as to who we use, what we’re doing, we have referees, we have persons who are directed to make decisions as to whether or not there is the capacity to manage your own affairs. That’s clear, they’ve been set out. Before it was by guess and by God. The judge would listen to the evidence and it would be the judge that made the determination. Not a very satisfactory way of doing it, not because the judges weren’t every bit as good then as they are now or had less ability. It’s just that there is a scientific aspect to the appointment of guardians that I think we didn’t realize as much then as we do now, and that it isn’t basically simply a judicial function. It’s a function that involves almost all the aspects that one would put into ordinary daily living concepts.

Suzana Popovic-Montag: Right and you say that comes about because of the clearer definition that’s set out in our statute now.

Rodney Hull: That is correct. Yes, I think so. I think it gives us great guidance. It makes clear what we should be doing and the procedure is far, far more closely defined. Before it was, as I say, by guess and by God. You brought an application to have a committee appointed under the Act and of course the Children’s Lawyer would sometimes be involved, and the Public Guardian and Trustee was involved, as they are today.

Suzana Popovic-Montag: That’s right. And now that’s certainly from the financial perspective. So when we’re appointing someone to manage property, but how would you say, if at all, its changed in terms of having someone appointed for personal care?

Rodney Hull: That, of course, is probably the most difficult aspect to try and deal with.

Suzana Popovic-Montag: Yeah.

Rodney Hull: You know you…there are some people you don’t want to have the ability to pull the plug on you, that’s for certain. And we can all figure out who some of them are. But basically, I think the ones that are nearest and dearest to you are the ones that should have that decision. There is nothing worse, in my mind, than having no direction really, no written direction, but to have a gathering of 6 or 7 people around and there you are with one of these breathing devices in you, you hate it, your arms are tethered, you can’t tear it out, and they’re sitting around the table arguing whether or not it should be pulled out. We want Dad or Mom or Auntie so and so to have every chance to live and come back, even though the doctors say he or she is going to be a vegetable. That’s not good. But to be able to show the directing people that you have the authority to do it I think is very important. Finding that person is where the rubber hits the road.

Suzana Popovic-Montag: It’s so true and, you know, I wonder, from your experience, like I know certainly judges are reluctant these days to make those kinds of decisions, because those are such personal decisions that they don’t necessarily feel qualified in many cases to make that kind of a determination. Was it any different under the prior legislation?

Rodney Hull: Oh I don’t…I think myself that there was no clear authority to do it but the doctors looked after it pretty well.

Suzana Popovic-Montag: That’s true.

Rodney Hull: But everybody has become very conscious of taking on any responsibility that might involve you with bad feelings between people and I think that basically is how it was done. It was just done by guess and by God and sometimes oxygen didn’t get through, that’s all, sorry about that.

Suzana Popovic-Montag: It really seems to underscore, to me anyway, the importance of this planning, of planning during your lifetime, of telling people what it is you want and why it is you want it so that when these tough decisions have to be made, then you know at least you’ve got some guideposts.

Rodney Hull: You really don’t have to be too clear as to what you want. You don’t want to be going through a lifetime of pain and suffering and stuck with one of those things in your head backed up, and the pump going and you’re there, you’re not conscious. You don’t have to be a Rhodes scholar to figure that person doesn’t want to hang around very long.

Suzana Popovic-Montag: That’s for sure.

Rodney Hull: You know.

Suzana Popovic-Montag: So just in terms of some advice, Rodney, what would you say to people who are dealing with individuals who are sort of in this grey zone, where we’re just not sure if they are fully cognizant and capable or maybe they’re on the cusp of no longer having capacity? Any thoughts or any guidance for us in terms of dealing with those kinds of individuals?

Rodney Hull: Well I guess kindness is the only word that really comes on bidden to the lips. It’s a very difficult responsibility to take on; it’s a very difficult responsibility to pass on. So it just has to be guided by common sense and as I say, kindness, probably.

Suzana Popovic-Montag: Yeah. Well thank you very, very much, Rodney. It was a pleasure having the opportunity to podcast with you again, and to seek some of your thoughts and guidance to us, so thank you for joining us.

Rodney Hull: Thank you, Suzana, for having me.

Suzana Popovic-Montag: And just a quick reminder to everyone to feel free to provide us with any comments, any feedback, at hullandhull@gmail.com or feel free to visit our blog at estatelaw.hullandhull.com.

You have been listening to Hull on Estates and Succession Planning by Ian Hull and Suzana Popovic-Montag. The podcast you have been listening to has been provided as an information service. It is a summary of current issues in estates and estate planning. It is not legal advice and you are reminded to always speak with a legal professional regarding your specific circumstance.

To listen to other Hull & Hull podcasts, or to leave any questions or comments, please visit our website at hullestatemediation.com. 

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Listen to The Benefits of the Family Meeting

This week on Hull on Estate and Succession Planning, Suzana Popovic-Montag speaks with Rodney Hull about the benefits of holding a family meeting to discuss estate matters while the testator is still alive. They both extend their condolences to the family of Ted Rogers, who passed away today.

If you have any comments, send us an email at hullandhull@gmail.com or leave a comment on our blog.

This week on Hull on Estates, Rodney Hull and Jonathan Morse discuss the case of Rose v. Rose [which can be found at 24ETR(3D)217 or 81OR(3D)349]. The case is valuable and instructive as it  raises questions about rectification, rescission and removal of the trustees.

Feel free to send us an email at hull.lawyers@gmail.com or leave us a comment on the Hull on Estates blog.

Rose v. Rose - Hull on Estates Podcast #139

Posted on December 2^nd, 2008 by Hull & Hull LLP

Jonathan Morse: Hello and welcome to Hull on Estates. You’re listening to episode 139 on Tuesday, December 2^nd, 2008.

Welcome to Hull on Estates, a series of podcasts for the Canadian legal community dealing with issues and insights surrounding estate planning in Canada.  Hosted by the lawyers of Hull & Hull, the podcast will touch on some key considerations when planning estates and wills. Now, here are today’s hosts.

Rodney Hull: Hi and welcome to another episode of Hull on Estates. I’d Rodney Hull.

Jonathan Morse: And I’m Jonathan Morse.

Rodney Hull: If you want to be heard on Hull Estates, you can participate by leaving us a comment. E-mail us at hull.lawyers@gmail.com or you can visit our blog at estatelaw.hullandhull.com.

Jonathan Morse: Thank you for that, Rodney. Today I thought, with your agreement, that we would discuss a case which is called Rose and Rose. And it’s a decision of the Ontario Superior Court of Justice. It’s 24 E.T.R. (3d) 217. Also found at 81 O.R. (3d) 349. And I might just spend a moment introducing the facts of this case. The decision was by Justice Lissaman. The decision was made August 2, 2005. Sorry, the judge was June 19, 2006. It was heard August 2, 2005 as well as March 6 and 7, 2006.

And in this case, it deals with a trust that was established. A cottage property was put in a trust in 1992 and at the time, there were two children who were the beneficiaries of the trust. The children were age 7 and 9. And at the time the trust was created, the relationship between the husband and wife was friendly. And unfortunately, as matters progressed, the relationship, the marriage broke down and, of course, the trust issue arose. And we both had a chance to speak about this, and I thought I might ask your thoughts, Rodney, on the value of this case.

Rodney Hull: Well I think this is a very valuable case, from a standpoint of lawyers practising in the trusts and estates field because it deals with the subjects of rectification, rescission, removal of trustees and just some general principles of interpretation. Its descriptive, it’s incisive and it’s well written, this judgment, and very educational, in my view. Written in plain terms and readily understandable.

Jonathan Morse: If you would, Rodney, would you just maybe speak about the rectification aspect of the case to start us off.

Rodney Hull: Well the questions raised by, in rectification, rescission and removal of the trustee are dealt with by the trial judge. And he finds that none of these particular forms of relief are available in the circumstances because the law simply does not go far enough to permit it in this particular case. And where he does linger for the most part is on the question as to whether or not he can use, occupy and enjoy the property during his lifetime or during the period of the trust. And some general principles of interpretation are dealt with. The unfortunate part was that the trust deed did not deal with use, occupation and enjoyment, nor does there appear to be any consideration given to a right to occupy and enjoy. The question, of course, raised is if it had been raised by the estate planner, it seems to me that it would just call on bidden to the lips the response well, don’t worry, the children will let me on the property any time I want, so we don’t have to provide it. And it might as well have had some adverse tax consequences upon a reading of Section 105 of the Income Tax Act of Canada, had it been specifically included as a provision in the agreement, perhaps as a benefit or some other right to enjoy, which had a value.

Jonathan Morse: And just on that point, Rodney, if I may. I understand on the facts that there was a disagreement between the husband and wife as to the purpose of the trust and the husband’s view was that it was motivated for tax reasons.

Rodney Hull: Yes.

Jonathan Morse: But the wife, her view was that the trust was established essentially to give the property to the two children. So I guess the intention of the parties, they had a disagreement as to their intention and that affected, played into whether there could be any rectification, is that right?

Rodney Hull: Well, I think so. And I can say this that the tenor of the relationship between the father and his daughters and the father and the mother were such that the judge held that they simply couldn’t co-exist on the same property and accordingly, he had to meet the question of use and occupation and enjoyment on general principles of interpretation. And he simply wasn’t able to come to the conclusion that there was a use, occupation and enjoyment right in the father who had given the property to the children. I have to say that it’s an extremely difficult decision for the trial judge by reason of the fact that the feelings were so bad that he had to consider that probably as the most important consideration to be dealt with in making the determinations.

Jonathan Morse: And one further question, if I may. Clearly the trust document, the deed of trust, it could have addressed this issue of use, is that correct?

Rodney Hull: Yes it could have.

Jonathan Morse: And because it didn’t, there was no room to interpret that the husband, the settlor had any right to use the property.

Rodney Hull: That is so. I think the judge based his decision on the fact that he could not act on surmise or guesswork. And in this case, he simply had to deal head-on with the general principle of interpretation that I set out earlier in this discussion.

Jonathan Morse: And just one other, a few other issues come up but we are running out of time. On the conflict issue, I think the judge held simply that the husband could not continue to act as a trustee when he had a personal interest in the use of the property but also had a role as a trustee. And therefore had to step down as trustee.

Rodney Hull: Well I think the trial judge was faced with the plain and simple fact that the children and the father were not able to get along together and how can a trust be properly administered by a trustee when such bad feelings arise between them? And there’s lots of authority for that proposition and I think the judge came to the correct conclusion in removing the father as a trustee in the circumstances. However, I note that I had the general feeling that the trial judge really wanted to help the husband in some way but was unable to do so. But I noted that the costs on the highest level were awarded out of the assets of the trust. And I think that would fortify my feeling that the judge felt very uncomfortable in disposing of the matter to the detriment of the husband.

Jonathan Morse: Well I think we’ve discussed a few different aspects of this case and as I understand, it’s quite an important case in this area. I think that brings us to the end of this week’s discussion. Thanks for listening and thanks for joining me and Rodney today. It was a pleasure to be able to work with you, Rodney, on this podcast. And I look forward to podcasting with you again soon.

Rodney Hull: The pleasure is mine. Thank you.

Jonathan Morse: We look forward to hearing from our listeners. You can send us an e-mail at hull.lawyers@gmail.com. Be sure to visit our blog at estatelaw.hullandhull.com where you’ll find even more information and discussion on today’s practise of estate law. We hope that you enjoyed the show. I’m Jonathan Morse.

Rodney Hull: And I’m Rodney Hull. Until next week, so long.

This has been Hull on Estates with the lawyers of Hull & Hull. The podcast you have been listening to has been provided as an information service. It is a summary of current legal issues in estates and estate planning. It is not legal advice and you are reminded to always talk with a legal professional regarding your specific circumstances.

To listen to other podcasts, or to leave a question or comment, please visit our website at www.hullandhull.com.

Our theme music is Upper Structure by DJ AKid  and is courtesy of the Podsafe Music Network.

/mem

Listen to Direct and Indirect Approaches to Estate Planning - Part 1

This week on Hull on Estate and Succession Planning, Ian and Suzana start a discussion on their global philosophy toward the estate planning process. There are direct and indirect approaches to capacity and estate planning and in this episode, Ian and Suzana explore these approaches as they pertain to the choice of attorney.

If you have any comments, send us an email at hullandhull@gmail.com or leave a comment on our blog.

Direct and Indirect Approaches to Estate Planning - Part 1 - Hull on Estate and Succession Planning - Podcast #140

Posted on November 25, 2008 by Hull & Hull LLP

Welcome to Hull on Estates and Succession Planning, a series of podcasts hosted by Ian Hull and Suzana Popovic-Montag, that will provide information and insights into estate planning in Canada. From the offices of Hull & Hull in Toronto.

Suzana Popovic-Montag: Hi and welcome to Hull on Estate and Succession Planning. You’re listening to episode #140 of our podcast on Tuesday, November 25^th, 2008.

Hi there, Ian.

Ian Hull: Hi Suzana.

Suzana Popovic-Montag: How are you today?

Ian Hull: I’m terrific.

Suzana Popovic-Montag: That’s good.

Ian Hull: It’s a big day today. It’s the founder of our firm’s birthday.

Suzana Popovic-Montag: That’s right.

Ian Hull: Rodney Hull turns something significantly more than 70. I’m not sure what. And it’s a big day for him. So…

Suzana Popovic-Montag: Congratulations Rodney.

Ian Hull: The topic that we wanted to cover today and we don’t know if we’ll get it done in one podcast, so we’re happy to do it in two, would interest I think a lot of listeners on a couple of levels. So we do remind you that you’re free to send some input to us. And e-mail us at hullandhull@gmail.com.

Suzana Popovic-Montag: Or of course, feel free to send us an e-mail at estatelaw.hullandhull.com.

Ian Hull: Alright. So one of the topics that has come up in the past six months in our blog and one that we wanted to sort of flesh out a little bit today was some of our sort of global approach to estate planning and how that dove-tails into the different kinds of contentious matters that can arise. And one of the most difficult contentious matters is when you get into a Power of Attorney fight. When you are fighting over the body, so to speak, while it’s alive. And when you have a person who’s in that grey zone of incapacity, who should control what and so on. So let’s, before we get into how that works, let’s talk a little bit about sort of our global philosophy that we kind of break down when we think about how we’re going to manage people’s estate plans. And we’ve sort of broken it down into three categories: one is the direct; one is the indirect approach; and the third is sort of a meshing of the two.

Suzana Popovic-Montag: That’s right.

Ian Hull: So let’s start with defining the estate planning process as we have with the indirect. What do we mean by that?

Suzana Popovic-Montag: Well that, Ian, I think is more or less what people would recognize as the traditional way of planning an estate. So it’s the documents that you create, for instance, in a Power of Attorney situation, the Power of Attorney document. It is a testamentary instrument, a Will perhaps. Those are the things that we have a comfort level with as lawyers, and probably a lot of lay people as well. Those are those documents that we typically identify with an estate plan.

Ian Hull: So we call them indirect because they are people’s efforts to estate plan or capacity plan without actually talking to anyone typically.

Suzana Popovic-Montag: That’s right.

Ian Hull: Because the document does the talking.

Suzana Popovic-Montag: That’s right.

Ian Hull: When you become incapable, the Power of Attorney does the talking. When you pass away, the Will does the talking. And that’s not to say that people don’t talk about those documents with their beneficiaries and their attorneys before they fall into those categories, those gruesome categories. But that’s how we look at indirect.

Alright. So then let’s step back again and if we’ve got sort of two categories, the indirect, what’s the direct estate planning techniques that we have used in the past that are of some help?

Suzana Popovic-Montag: Well those, Ian, are what we sort of call the eyeball effect planning methods. And we talked a little bit during our last podcast about the family meeting, for instance, as a suggestion of a way to do that, where you’re actually sitting around a table or in some informal environment with your family members and telling them what your plan is. What you would like to happen if something were to become of your capacity. What you would like to do with your estate upon your death. So you’re having that conversation with individuals. You’re looking them in the eye as we say, and explaining to them why you’re perhaps treating them differently than they might otherwise have expected.

Ian Hull: Alright. Well for today, we no doubt will talk in some detail about the family meeting. But we want to remind people that the first probably thirty podcasts of Hull on Estates and Succession Planning really particularize the process in extensive detail. So should they be interested, they’ve got a resource there. We always like to remind ourselves that we have done some hopefully useful things in the past.

Suzana Popovic-Montag: That’s right.

Ian Hull: So this indirect approach and the direct approach, these two options, what do we mean by the sort of third, hybrid option? What are we talking about in terms of the general concepts?

Suzana Popovic-Montag: Well both processes, Ian, are so fluid because they really, you can mold them to whatever your particular circumstances are. And so when we say a hybrid, what we’re talking about is the fact that some plans will have these kinds of informal arrangements where there is the meeting, there is the discussion which will then be turned into some kind of document, the traditional kind of estate planning documents that we typically see. And you’ll gear your particular circumstances to your situation. And so you’ll have maybe a written part, verbal part discussion or whatever it is, and you’ll come to something where its not sort of the, you know, cookie-cutter expectation of either the direct with the family meeting, or ADR or we call it Alternative Dispute Resolution mechanisms, or the actual traditional documentation.

Ian Hull: Okay. So a good illustration I’ve seen in the past with the hybrid approach is that an easy one would be someone does a Will, wants to give their gifts to certain individuals in the family and they tell them that. So they tell them who the executor is and who the beneficiaries are. So that (a) there’s no surprises; and (b) that if there’s some time to get feedback, they may as well do it while you’re alive.

Suzana Popovic-Montag: That’s right.

Ian Hull: So that’s our hybrid analysis.

Okay, let’s spend some time talking about how the indirect, direct and sometimes hybrid approaches are used sort of, let’s put some real tangibles to it, alright? And we talked earlier in this podcast about Power of Attorney litigation and those kinds of fights. Because there is really capacity planning which is Power of Attorneys, and then there’s Will planning. So let’s start with capacity planning and how we can use the indirect and direct form of communication to properly and effectively capacity plan. And let’s use one illustration that comes to mind. The first illustration that comes to mind is choice of attorney. So how are we going to deal with choice of attorney in the two different models?

Suzana Popovic-Montag: That’s a great set-up, Ian, for a discussion and I think, you know, we start of course with an individual saying or doing the planning, doing the determination of who he or she would ultimately want to take care of their affairs if something were to happen to their faculties and their own ability to do so. And so they will have an individual or two probably in mind, or, you know, other family members. They’ll call a meeting.

Ian Hull: Okay, so sorry, we’ll stop there. We’ve picked the person, right? So we’ve done our homework and that’s a personal step that we’re going to take, with maybe consultation. So there is some, that’s indirect because it’s ultimately, we’re not talking to anyone yet, but it might become more direct because we might say, geez you know, I’m thinking of x, y and z with our friends or our trusted advisors, not our family yet.

Suzana Popovic-Montag: Okay.

Ian Hull: Okay? So then you’re saying we need to call a meeting of some sort.

Suzana Popovic-Montag: It’s certainly a suggestion in those circumstances. If you do want to steer away from just having it become a surprise at the end of the day, then you’ll set up that kind of arrangement where you can have these discussions. And I think its really important to have them with your proposed attorneys. In particular, you want to make sure that they know how it is that you would ultimately like things to be handled once you can no longer handle them yourself, and also consider anyone else who might be affected by that decision, and perhaps consider bringing them into it.

Ian Hull: Good, alright. So we’re talking now, we’re leaving it from just this indirect; it will pop into the system when I become incapable and we’re bringing in some direct steps.

Suzana Popovic-Montag: That’s right.

Ian Hull: So let’s break down those two direct steps. The first is you say we should talk to our attorney. Alright, first of all, why would we talk to our attorney? And second of all, what are some of the things that we want to talk to them about?

Suzana Popovic-Montag: Well clearly, the fact that you are contemplating them as an attorney would be one of the first things that you’d want to discuss with them, I’d expect. And then beyond that, how you would like them to deal with this. And how you would like them to, for instance, if its your property that you’re dealing with, you’d like your assets managed during your lifetime. If its your personal care, you would want to discuss what kinds of things are important to you so that if these decisions have to be made one day, they’ll have some ideas as to how you would have liked them to have been executed.

Ian Hull: Well look, I think what we’ve done is we’ve started the process of how we’re going to use the two communication models, direct and indirect. We’re starting to put some illustration to that with the choice of attorney. The next podcast, let’s move on to talking a little bit about with some particulars, what are some of the actual things we’re going to talk about to our attorney. Before we’ve come out to them and once we’ve decided it, we’ve done our testing the waters.  We come out to them, we’ve chosen the person who we’re going to deal with, and what are some of the issues we’ll want to talk to them about. And we can do that both in indirect ways and direct ways, and we’ll talk a little bit about that in our next podcast.

So please, again, we remind you that we welcome and look forward to any feedback you may have. Easiest way to do it might be at hullandhull@gmail.com if you’re liking the e-mail from that venue.

Suzana Popovic-Montag: Or feel free to visit our blog at estatelaw.hullandhull.com.

Ian Hull: Thanks Suzana.

Suzana Popovic-Montag: Thanks Ian.

You have been listening to Hull on Estates and Succession Planning by Ian Hull and Suzana Popovic-Montag. The podcast you have been listening to has been provided as an information service. It is a summary of current issues in estates and estate planning. It is not legal advice and you are always reminded to talk with a legal professional regarding your specific circumstance.

To listen to other Hull on Estate podcasts, or leave any questions or comments, please visit our website at hullestatemediation.com.

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Listen to:

The Interrelationship Between a Guardian of Property and a Trustee Under a Testamentary Trust

This week on Hull on Estates, Rick Bickhram and David M. Smith discuss the complications that can arise when an incapable person is both the subject of a guardianship order and the beneficiary of a testamentary trust.

Comments? Send us an email at hull.lawyers@gmail.com, call us on the comment line at 206-350-6636, or leave us a comment on the Hull on Estates blog.

The Interrelationship Between a Guardian of Property and a Trustee Under a Testamentary Trust - Hull on Estates Podcast #133

Posted on October 21^st, 2008 by Hull & Hull LLP

Rick Bickhram: Hello and welcome to Hull on Estates. You’re listening to Episode 133 on Tuesday, October 21^st, 2008.

Welcome to Hull on Estates, a series of podcasts for the Canadian legal community dealing with issues and insights surrounding estate planning in Canada.  Hosted by the lawyers of Hull & Hull, the podcast will touch on some key considerations when planning estates and wills. Now, here are today’s hosts.

Rick Bickhram: Hi and welcome to another episode of Hull on Estates. I’m Rick Bickhram.

David Smith: And I’m David Smith.

Rick Bickhram: If you want to be heard on Hull on Estates you can participate in our discussion by leaving a comment. Give us a call at area code 206-350-6636. The number is in the show notes along with our e-mail address which is hull.lawyers@gmail.com, or you can visit our blog at estatelaw.hullandhull.com. Today David Smith and I are going to be discussing the complications that can arise as a result of guardianship applications.

David Smith: That’s right, Rick. I think what we thought we would discuss is, we’re generally familiar with the concept of guardianship applications. I want you Rick, just to give us a refresher on that before we delve into some of the complications that can arise, because the management of property is not always a simple thing, especially when there are competing interests that arise which require the guardian to seek legal advice or consider whether there is any kind of conflict of interest. Before we get into that, Rick, though, let’s talk about guardianship generally. What are the two types of guardianship and how is a guardian appointed in Ontario?

Rick Bickhram: Well, there are two types of guardianships. The first type of guardianship is the guardianship of property.  And basically a person is appointed to manage with the individual’s or the incapable’s financial affairs.  And the other type of guardianship is the guardianship of personal care. And what that pretty much entails is a substitute decision-maker is appointed to handle the personal care decisions involving the incapable individual. Now looking at what governs substitute decision-makers, there is a statute, which is known as the Substitute Decision Act which is the primary statute governing the appointment of all substitute decision-makers in Ontario.

David Smith: That’s right, Rick, and you know, guardianship is under the supervision of the Court. It’s where the Court steps in and appoints a guardian in those circumstances where someone may not have otherwise provided for a substitute decision-maker by making a Power of Attorney either for property or for personal care. And of course, you can sometimes have situations where one or more attorneys are appointed under a Power of Attorney and can’t agree, and in that situation, where there’s a contest between the individuals who are meant to act jointly but can’t, that’s a situation where you’ll see a contested guardianship application, where the parties basically go in front of the Court and say, judge, over to you, we can’t agree, we need some help here. So that’s the subject of another podcast. 

But today what we want to talk about is complexities that can arise when the alleged incapable person has an interest in property where the discretion to encroach or the discretion to exercise an entitlement may be in question. So, Rick, typically in the guardianship applications that we see in our office, and that you see in this area of practice, when someone is alleged to be incapable and the Court is asked to supervise the substitute decision-making for that person by appointing a guardian, obviously one step a guardian has to make is to prepare a management plan, right?

Rick Bickhram: My understanding of what a management plan is, is that it sets out the guardian’s plan, or his or her proposal to manage this individual’s property going forward.

David Smith: When we’re talking about property, Rick, what are we talking about? Are we talking about just real estate or are we talking about financial assets or can it be all these things?

Rick Bickhram: My understanding is that it involves all of the incapable person’s property, real estate, his bank accounts, any investments that he may have, etc.

David Smith: Right. Now the interesting thing with this area of law is you get all kinds of different scenarios. You will have an incapable person who may have no interest in property or money whatsoever.  You may have someone who simply receives a pension.  You may have someone who’s been brain-injured in an automobile accident and who, therefore, is receiving the benefit of a structured settlement.  Or you may have someone who, through whatever means, has gained a significant amount of their own assets. 

And the complication I want to talk today, Rick, is an interesting situation which I’ve run across, and that’s a situation where let’s suppose that the incapable person has been incapable since childhood. Through one means or another, that person has managed to accumulate some significant personal assets. In addition, that person’s parents, when they passed away, left Wills that provided a testamentary trust for the benefit of the incapable person. So the incapable person then has two sets of assets. One of the assets is let’s say, an investment portfolio, consisting of their own personal investments. The other asset is an interest in a testamentary trust. Now the testamentary trust will be in the discretion of the trustee appointed under the testamentary trust, and that trustee will have a discretion to pay out income to the incapable person. The interesting question, of course is, how does that responsibility dove-tail with the responsibility of the guardian? And the Courts are beginning to have to wrestle with this question. Because once the guardian is in place, the guardian has to manage the affairs. And while the guardian is responsible for administering the property of the incapable person, there’s also a responsibility to receive income from the testamentary trust. The complication, of course, is that the trustee under the testamentary trust is an entirely different person from the guardian.  And so you’ve got two sets of responsibility here. You’ve got a trustee under a testamentary trust making decisions as to what and how much money to pay out to the incapable person.  And on the other hand, you’ve got the guardian for the incapable person who is themselves looking after the property. It’s kind of an interesting question, eh, Rick?

Rick Bickhram: I completely agree with you. What’s your take on whether or not a conflict is present?

David Smith: Well, good question, Rick, because let’s suppose the guardian for the incapable person is also the same person who would be the capital beneficiary on the death of the incapable person. That is to say, let’s assume that the testamentary trust provides for the benefit of the incapable person, gives the trustee the discretion to encroach on the capital for the beneficiary person, but also says that on the death of the incapable person, the beneficiary is by happenstance the same person who seeks to be appointed as the guardian. Sounds like a conflict to me, Rick. What do you think?

Rick Bickhram: Absolutely, and the conflict, I guess, at least in my mind, has to deal with the even hand principle.

David Smith: What’s the even hand principle and how would that apply here, Rick?

Rick Bickhram: Well the even hand principle pretty much is where there’s a trust set up, there are two beneficiaries. There’s a capital beneficiary and then there’s the income beneficiary.  And what the even hand principle stands for, is that the trustee has to act with an even hand for the benefit of both the income beneficiary and the capital beneficiary.

David Smith: That’s right. And of course, you know the difficulty is that the trustee who has to decide whether to exercise discretion, needs to, there are some questions to what criteria the trustee has to consider in deciding whether or not to pay money out of the trust.  And there’s been some talk in some of the cases that talks about a means test which basically is, does the trustee have to look to the means of the alleged incapable to decide whether they’re in need of money from the trust, and if so, how much money?

Rick Bickhram: Well that sounds like an interesting decision, Dave. What case is that?

David Smith: Well you know, Rick, there was a case of Hinton and Canada Permanent Trust Company, and in that case, the wording of the Will in question was strongly in favour of a claim to encroach. Nevertheless, the principle applied. The failure of the author of the trust to allude to the resources of the beneficiary led to an inference that the trust is to maintain and benefit the beneficiary, regardless of and without recourse to his own needs. 

So Hinton seems to stand for the proposition that you don’t necessarily look to means. I think the other interesting issue is there’s a whole body of cases that deal with when the Court has jurisdiction to interfere with discretion exercised by the trustee. And we’re not going to get into that now. One of the cases is Fox and Fox Estate, and there are some other cases that deal with situations when the Court will be critical of the trustee for not acting for the, not appropriately exercising discretion for the benefit of the beneficiary. That’s the issue for a separate podcast. 

But again, I think the really curious issue here is, to what extent does the guardian have any sway over the exercise of the discretion by the trustee, and to put it another way, when the trustee has to consider on what basis to pay out money to the beneficiary. To my mind, that trustee is him or herself exercising a substitute decision-making role in a sense, over the incapable person because the trustee is having to consider what and how much money is required by the incapable person which, of course, is exactly the same responsibility that the guardian has. I suppose another way of looking at it, is that the guardian can simply just passively wait to see how much the trustee is going to give him.  But in any scenario, it’s hard not to imagine that the trustee on a testamentary trust would have to communicate at some level with the guardian.

Rick Bickhram: Absolutely. It’s a give and take relationship it sounds like to me.

David Smith: Right, because both of them are looking after the same person. The guardian is safeguarded to look after the well-being of the incapable, whereas the trustee under the testamentary trust has a fiduciary duty to ensure that the beneficial entitlement of that person, who happens to be incapable, is provided for. And of course, the whole reason that the testamentary trust was set up was because the person was incapable and needed a trustee to look after their affairs. So you’ve got an interesting dove-tailing of responsibility between a trustee and a guardian.

Rick Bickhram: Sounds very interesting, Dave.

David Smith: Well, Rick, thanks a lot for this discussion. I really enjoyed it and it was good to sort of explore some of the outer limits of the relationship that can occur between guardians and trustees.

Rick Bickhram: It was a pleasure to podcast with you today, and we look forward to hearing from our listeners.  You can send us an e-mail at hull.lawyers@gmail.com or just pick up the phone and leave us a message on our comment line at again, 206-350-6636. Be sure to visit our blog at estatelaw.hullandhull.com where you’ll find even more information and discussion on today’s practice of estate law. We hope you enjoyed the show. I’m Rick Bickhram.

David Smith: And I’m David Smith.

Rick Bickhram: Until next week, so long.

This has been Hull on Estates with the lawyers of Hull & Hull. The podcast you have been listening to has been provided as an information service. It is a summary of current legal issues in estates and estate planning. It is not legal advice and you are reminded to always talk with a legal professional regarding your specific circumstances.

To listen to other podcasts, or to leave a question or comment, please visit our website at www.hullandhull.com.

Our theme music is Upper Structure by DJ AKid  and is courtesy of the Podsafe Music Network.

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Generally speaking, when an annuitant dies, the fair market value of the RRSP is attributed to the annuitant’s income during his or her final year of life and must be included on the terminal return. The result is that an RRSP will be generally taxed in the hands of the deceased. 

However, there are exceptions to this rule.  The estate can avoid paying the taxes on an RRSP if the following are the beneficiaries:

a)      The annuitant’s spouse or common-law partner; or

b)      The annuitant’s dependant child or grandchild. 

The tax implications for the above beneficiaries vary.  If the beneficiary is the spouse, common-law partner, or a dependant child or grandchild with a physical or mental infirmity, then tax can be delayed by transferring the funds to an RRSP or RRIF. 

A dependant child or grandchild (with no infirmity) has the option of staggering the tax consequences by purchasing an annuity that matures no later than his or her 18^th birthday. 

However you choose to deal with your RRSPs when planning your estate, it is always a good idea to talk with your estate planner about the tax implications of any designations you are making. 

For more information, check out the Canada Revenue Agency’s memo on the “Death of an RRSP Annuitant”. 

Thanks for reading,

Megan F. Connolly  

Posted on December 18^th, 2007 by Hull & Hull LLP

Suzana Popovic-Montag: Hi, and welcome to Hull on Estate and Succession Planning. You’re listening to Episode #91 of our podcast on Tuesday, December 18^th, 2007.

Welcome to Hull on Estate and Succession Planning, a series of podcasts hosted by

Ian Hull and Suzana Popovic-Montag, that will provide information and insights into estate planning in Canada, from the offices of Hull Estate Mediation in Toronto, Ontario, Canada. Here are Ian and Suzana.

Ian Hull: Hi Suzana.

Suzana Popovic-Montag: Hi there, Ian. How are you today?

Ian Hull: I’m fantastic.

Suzana Popovic-Montag: That’s good. How’s your Christmas shopping coming along?

Ian Hull: Yeah.

Suzana Popovic-Montag: One week till Christmas. And the countdown begins.

Ian Hull: Yeah, good question and it hasn’t even begun the shopping, so the stores will hear from me. I remember one Christmas I shopped so fast that Visa called me because I had gone to 3 stores so quickly they thought that I was a thief and took my card. So that we have to look forward to.

But it’s a good time, I think, certainly this time of the year. And more importantly, we’ve been working through some of the estate planning questions. We got a little bit more complex as we moved along in this what we call “mini series” of tax planning the Wills and looking at the tax issues. And I thought today what we could do is just spend a few minutes really just doing a bit of an overview of what we’ve accomplished. I was struck by the fact that recently I was listening to Terry Fallis’ Inside PR and he and Dave Jones are great podcasters. We’ve talked about them in our podcasts from time to time and Episode #87 was one which they were talking about, and it sort of struck me about how we’ve been trying to approach this little mini series on tax planning. They were talking about what is social media and what sort of good does it bring to the process and what kind of…what are the positives and negatives. And clearly, the positive is hopefully an exchange of information that we want to foster and encourage. And certainly through this series, one of the things that I know you and I want to work on in ’08 to enhance this podcast is to get a little bit more exchange. We’re going to set up a 206 number or whatever, a call in number in the new year, encourage people to call in and make some comment if they think it’s appropriate. But, you know, when we were, you and I were working through these tax planning issues, we looked at sort of the three core areas that we find is the most feedback that we’re getting, from both our clients and from counsel and from the public so to speak, talking about avoiding estate planning tax, the Estate Act tax, which is a tax that everybody knows is the probate fee tax. That’s something that the feedback is consistent, although not on a 206 number, but in the informal discussion we have from day-to-day. Talking about how we deal with the capital gains tax. And then thirdly, how we manage US assets and sort of can start to consider the basic issues surrounding US estate taxes.

And so we hope that…Suzana and I certainly hope that we’ve managed to at least talk about these issues at a fairly sophisticated level in the sense that I hope we haven’t been too complex about the issues. But I think that we’ve tried to sort of cover these areas. And so I thought we’d spend a couple of minutes today just talking about, in general terms, those three concepts again and highlighting some of the core issues that we manage to work through over, I would say, I don’t know how many podcasts this mini series has been, but probably there’ve been 10 at least, I would think.

Suzana Popovic-Montag: That sounds about right, Ian.

Ian Hull: So remembering…I try to remember on the estate tax the first thing, being that let’s not…and I think that the core theme was with this tax planning series, was to refocus our attention to away from the soft issues and really spend some time on what are the tax issues. And clearly, avoiding the estate administration tax in Ontario tends to be a fundamental estate planning tool that people undertake. It’s 1.5% of the assets so, as we’ve continued to say, we don’t want to over exaggerate it.

Suzana Popovic-Montag: On our companion podcast last week, Ian, we know that David Smith and Allan Socken were speaking about probate and issues that arise in estate administrations. And one of the things that Dave said is that it’s just remarkable how often and how prevalent the fact that people are trying to avoid a 1.5% tax leads to a whole bunch of issues from a litigation perspective, that people wouldn’t otherwise have expected. It’s just really quite remarkable that when you really think about that number, it’s not as significant, I would suggest, as what other people might think. And the hoops and the lengths that people will go to, to avoid that, it just sometimes just doesn’t warrant it.

Ian Hull: Absolutely. Now remember we had some good discussions on how we manage the capital gains tax. And one of the ways that we talked about managing it was creating the trust environments, both testamentary trusts and inter vivos trusts, so trusts during the lifetime. So on estate administration tax, the simple answer to avoiding it in a large part is the primary and secondary Will, creating two Wills; one dealing with issues that will be taxed, and others dealing with assets that will not be taxes, typically corporations and the like.

Suzana Popovic-Montag: Another thing that we talked about was the use of beneficiary designations in either RRSPs or in life insurance policies and those kinds of instruments.

Ian Hull: So we don’t want to forget the two different trusts because that does help us defer the capital gain. And the capital gain, that terrible moment in time when finally Revenue Canada catches up to us and forces us to pay the tax that we owe. Now, again, just talking about what we wanted to accomplish on the trust analysis that we did was to emphasize that trusts that are created during lifetime create a different, entirely different tax structure too. And they don’t…you’re taxed at different rates as opposed to testamentary trusts. And so there is often an advantage to do the classic scenario where we have a husband and wife who are married. On the death of the first spouse, roll it over into a testamentary trust. It’s taxed at the lightest rate that can be taxed in Canada. That trust then stays alive, so to speak, during the surviving spouse’s lifetime. And then on his or her death, it finally falls into the next generation, the kids. And that’s a really simple but effective way of deferring the capital gains tax.

Another thing we talked about with the capital gains tax was how to offset it through uses of certain products, like you talk about when you can designate the RRSPs and so on, or a RIF or something to an individual who is going to receive a cottage, for example, say there’s a big tax hit. Another option we talked about was putting insurance instruments together even later in life, putting a joint last to die policy together where the two spouses buy a policy even late in life, where the last to die pays it out. And if you dovetail that into a spousal rollover or the spousal trust arrangement that we just talked about, you allow for easy transition into the next generation because you deferred the capital gains tax as far as you can and then on the death of the last spouse, a reasonable premium has been paid for the life insurance and then you have enough funds there, new funds essentially, to pay for this big capital gains tax.

The other area that we talked about finally was just dealing with and managing US assets. And the key issues there being that one that I always want to talk to my clients about is I make sure I want to double-check if they’re US citizens. And there was an interesting legislation that…I don’t know if it actually passed last week or not…but it was right up to the wire. In Canada, where if there was legislation that came about and it reminded me of these tax situations, it came about as a result of the fact this gentleman lived in rural Manitoba, was born actually in a US hospital. It was the closest hospital to where they lived in Manitoba. He was 40 years old now, so 40 years ago, his mother had to have, wanted to give birth somewhere and the closest hospital was a US hospital. He was born there and this gentleman, it’s a little off topic but it ties into the same sort of scenarios that we see in estate planning, and this gentleman ended up getting himself into some trouble with the law. And there was a threat that he was going to be deported or sent back to the US to face US time for his activity, his criminal activity or alleged criminal activity. And it was fascinating because the legislation in Canada now where they’re trying to fix that so that that little loophole won’t happen, that someone who really was almost a US citizen…he may or may not even remember that he was obviously a US citizen. And I use that illustration because we run into this a lot of the time with clients who will say, oh yeah, my Mom did live in the US when she was little. And then you find out, gee, you know, was she filing tax returns? Well yeah, because she got this small pension from this one thing and so she didn’t file or did file, depending on the circumstances, and it creates a whole new layer of estate planning problems. So our third part of this was dealing with, not just those kinds of creative situations, but dealing with that very prevalent situation where you’re either a US citizen or you have US assets and you live in Canada. How do you manage that from a tax planning standpoint? And I hope some of our talk about that was helpful as well.

So I think this was…today’s podcast was really to recap and I guess in some ways, we’re going to…we’re just putting together our next mini series right now. And in some ways, what we’re going to try to keep doing is encapsulating sort of core issues, talking about them over a series of podcasts to the extent that we can, so that we can make sure that we drill down on these issues beyond just sort of superficial comment.

Suzana Popovic-Montag: That’s great, Ian. Thank you very much for that summary. I think you really did sum up everything that we’ve talked about and I do look forward to our next mini series.

Ian Hull: So thanks again for listening to Hull on Estate and Succession Planning. It’s Ian Hull.

Suzana Popovic-Montag: And Suzana Popovic-Montag.

Ian Hull: Thank you.

You’ve been listening to Hull on Estate and Succession Planning with Ian Hull and Suzana Popovic-Montag. The podcast you have been listening to has been provided as an information service. It is a summary of current legal issues in estates and estate planning. It is not legal advice and you are reminded to always talk with a legal professional regarding your specific circumstances.

To listen to other Hull On podcasts, or to leave a question or comment, please visit our website at www.hullestatemediation.com.

Our theme music is UpTempo14 by Gary and is courtesy of the Podsafe Music Network.

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Posted on July 31^st, 2007 by Hull & Hull LLP

Suzana Popovic-Montag: Hi, and welcome to Hull on Estate and Succession Planning. You are listening to Episode #71 of our podcast on Tuesday, July 31^st, 2007.

Welcome to Hull on Estate and Succession Planning, a series of podcasts hosted by

Ian Hull and Suzana Popovic-Montag, that will provide information and insights into estate planning in Canada, from the offices of Hull Estate Mediation in Toronto, Ontario, Canada. Here are Ian and Suzana.

Suzana Popovic-Montag: Hi there Ian.

Ian Hull: Hi Suzana.

Suzana Popovic-Montag: How are you today?

Ian Hull: I’m just great.

Suzana Popovic-Montag: That’s good. 

Ian Hull: I was thinking that we might follow-up just one more comment from our last podcast.  After that, we were talking and we came up with one other case we thought that might be interesting to put some real life illustration to the situation. And it’s a recent case and the case is called Hall vs McLaughlin Estate. And in that case, it again, we’re trying to avoid getting too legalistic about it.  But it was an interesting case because it illustrates how these second marriage situations can really become tangible law suits. So often you get in a situation where there is a first marriage, Wills are made, which we call Mirror Wills, everything to each other and the like. And then what happens is that one of the spouses dies and the next spouse goes on to live a longer live and more fruitful life in that sense, in terms of time.  And sure enough goes and changes his or her Will. And the Hall vs McLaughlin case talked about whether or not when you did that Mutual Will, when you talked that first time you did that Will, is that a binding Will? That you, when you were doing that Mirror Will, did that mean that you were stuck with it? Could you go and change things? 

Suzana Popovic-Montag: Ian when you talk about Mirror or Mutual Wills, what are you actually referring to?

Ian Hull: Well I think it’s mostly just a situation where you’ve got gifts to each other and that you mirror it to each other. So I give all my assets to my wife and she gives all her assets to me.  And should we both die together, they go to our children. And that’s sort of the classic Mirror Will. But if someone ends up in a second marriage relationship, or not even a second marriage but a second relationship after one of the spouses has died, that whole theory of giving to the children of the first relationship may get undermined by virtue of a new friendship, a new relationship, new second marriage or second relationship kids. 

And the Hall vs McLaughlin case explored this idea that maybe we’re kind of locked into it when we do these Mirror Wills and maybe we don’t have the flexibility once the first relationship ends to go and just outright change the estate plan. And again, you know, it was just sort of an interesting illustration of the importance of getting an understanding with your two spouses, with the two spouses; when you sit down to do your Will.  Is this a Will that means that should you pass away before the other, that you expect the other person to then give to the first marriage children for sure?  Or is it something that you’re saying look, I have total confidence in you, you use the money as you see fit and you decide whether or not you think your estate should go to the second, I mean, to the first marriage children or the second marriage children depending on what you believe at the time. And I don’t think many couples have that discussion.  And so I don’t want to get too hung up on the Hall decision just because, you know, it’s special and it’s got its own facts. But it does raise the whole question as to whether or not we are committing, which is a classic scenario, and a mirror will scenario, first relationship scenario.  Are we committing to that estate plan essentially being held together for the rest of your life, including subsequent relationships?

So anyway, I think it’s just incumbent upon us.  Again, we talk about communication.  Well that’s a first line of communication, when a happy couple and they’re maybe in their twenties, just got married, go to do a Will. Does that will mean that you’re stuck with it for the rest of your life? And I think this Hall decision starts to ask that question and whether or not subsequent marriages, of course, will have impacts on it at law.  It might revoke the prior Will, but does it revoke the prior estate plan?  Those are good questions that arise out of it. But anyway, it was a good, I mean it was an interesting decision and I think a good illustration. 

Suzana Popovic-Montag: It also reminds us, Ian that, you know, we do have to regularly check our estate plan or update our estate plan because you can plan as best as you can in the circumstances.  But once things change, that plan might somehow be affected. And this just sort of is one of those illustrations of the situations where you have to go back and make sure that things are still as you’d want them ultimately to be.

Ian Hull: So having talked about a few cases in this podcast and in the last one, I thought we might just recap and maybe highlight a couple of causes of estate litigation or causes of fiduciary litigation that we keep running into. And the classic scenario, of course, is, it’s not the money - it’s the principle. And that is an important sort of reality that we have to face. What’s another sort of easy to identify scenario where we’re going to see these kinds of cases coming to life?

Suzana Popovic-Montag: I think one of the easiest examples that comes to mind, Ian, is when someone has died without a Will.  When they haven’t planned for their estate and suddenly they’re passed away and there’s chaos in terms of what’s going to ultimately happen and how the estate is going to be distributed.

Ian Hull: Absolutely, and I think, you know, there is a lot to the old adage that “if you don’t have a Will, the government is going to decide where your money goes”.  And it does.  I mean, the Succession Law Reform Act in Ontario and all other Canadian jurisdictions identify how an estate flows if you don’t have a Will. So essentially the government is saying where your money is going to go.  And it leaves everything in turmoil and it leaves lots of new problems. Another one is…that’s probably the most prevalent example of the chaos that ensues. The next probably on the list would be where someone goes and tries to do a homemade Will or a handwritten Will in that sense, with maybe a Will kit or something like that.  And they don’t have the expertise to fill it in properly. 

Suzana Popovic-Montag: And that, as you say Ian, a very common scenario that runs across our desks anyways.  And it’s just, you know, you always shake your head and wonder, you know, for the sake of a few hundred dollars or maybe even more to get a properly drawn Will, was it really worth it? I think just moving on to maybe another example of a situation that we see often giving rise to estate litigation, that being when, what we call a deathbed Will is actually created. That’s when a Will is drawn up by someone who’s sort of, you know, dying and has only limited time and effort available to him or her to put together an estate plan.

Ian Hull: And just as a follow-up to that, of course, is when someone is doing estate planning when their capacity, maybe not physically, but their mental capacity is failing or beginning to fail and puts you into a gray zone. And we call this sort of estate planning at five minutes to midnight. And whenever you do estate planning at five minutes to midnight, there’s a hidden tax that every estate, almost every estate, has to pay for that.  And that is the exposure to a fight.

Suzana Popovic-Montag: And the costs of litigation are just unbelievable.  So, to the extent that you can plan early, plan properly, plan, you know, on a regular basis in terms of updating things.  Really just critical.

Ian Hull: The old adage, “vote early and vote often”.

Suzana Popovic-Montag: That’s right. What would be another example, Ian, that sort of, you know, comes to your mind when we think about common scenarios that give rise to these kinds of fights?

Ian Hull: Well, I was mentioning in the last podcast that I had the privilege of being interviewed for a Globe article about the Rose decision and it was published in June of ‘07 here. And when I was talking to the reporter, you know, he asked me a question, I didn’t get quoted on this, but he did ask me that question.  And he said “you know, what is, what are common sort of failings?” And the thing that comes to mind to me the most and not just because of our practice, but just intuitively, is whenever someone decides to treat a child unequally, that is going to…there’s a consequence to that, the same kind of consequence that I talked about in planning at five to midnight. But with that unequal treatment, as long as you do it properly, you can still get around it.  It’s a little different than the five minutes to midnight estate planning.

Suzana Popovic-Montag: And that also sort of reminds me of the concept that, you know, fairness does not always equal equality.  And maybe in the minds of children that, you know, isn’t necessarily the way that it should have been, or should be.

Ian Hull: Also leads you to situations where, you know, in some families, there’s maybe one child that has been estranged.  Or, you know, we’ve run into situations where, you know, if there’s say multiple children, one child is favoured for awhile and then has to…another has to come into the fray because either that one’s exhausted or he or she’s moved away.  And then the new child sort of becomes more favoured and maybe gets treated differently and so forth. The ebb and flow of the human dynamic and the family environment is always something that has an impact.  And ultimately, we don’t know who’s going to be the last person standing, so to speak.

Suzana Popovic-Montag: That’s right, and certainly, you know, given our generation now with the easy mobility and the fact that people are taking different careers in different countries, different places.  You know, the fact that one child may be closer to Mom and Dad, might be a real benefit to Mom and Dad during their lifetime.  A benefit that perhaps the other siblings don’t necessarily appreciate, one that gets reflected at the end of the day and can also cause a lot of problems.

Ian Hull: Well that’s great.  Well anyway, we’ve tried to bring to life some of the ideas that we talk about through illustrations with the cases.  And hopefully again sort of rehashed a little bit. Worked backwards to look at some of the litigation flags and flashpoints, and I think, you know, what we do need to do is spend some more time maybe on the family cottage issue and how it’s being dealt with. So I think we’ll try to devote some time in a future podcast on that as well. So, thanks very much, Suzana.

Suzana Popovic-Montag: Thanks to you, Ian.

You’ve been listening to Hull on Estate and Succession Planning with Ian Hull and Suzana Popovic-Montag. The podcast you have been listening to has been provided as an information service. It is a summary of current legal issues in estates and estate planning. It is not legal advice and you are reminded to always talk with a legal professional regarding your specific circumstances.

To listen to other Hull On podcasts, or to leave a question or comment, please visit our website at www.hullestatemediation.com.

Our theme music is UpTempo14 by Gary and is courtesy of the Podsafe Music Network.

One such niece, Patricia Meadows, had been married to Alfie Meadows. Alfie was seeking entitlement to a share in the residue of the estate belonging to Patricia, who had died before the testator. He was doing so on the basis of the language contained in the Will that if any of the testator’s nieces or nephews predeceased him, that person’s share was to be paid to their surviving spouse.

The problem for Alfie was that he had been convicted of Patricia’s murder! The Court quite justly denied Alfie entitlement to Patricia’s share in the estate by applying the general rule of public policy that a person is precluded from benefiting from a crime.

The irony in this case is that while Alfie’s crime didn’t pay for him, it did benefit the surviving nieces and nephews, as the gift was a class gift (when a member of the class is disqualified their share is divided amongst the remaining members).

While this case made for an interesting read, I can only hope that the decision will help deter similar claims from arising again.

Have a good day,

Natalia Angelini

Read the transcribed version of "Estate Planning Considerations in the Context of Married and Unmarried Spouses"

During Hull on Estate and Succession Planning Episode #54, Ian and Suzana discuss how to avoid Will drafting problems when creating beneficiary designations for insurance trusts.

They also discuss the importance of including funeral arrangements in your Will, and the various Provincial approaches to the revocation of wills after marriage and after a divorce.

Read the transcribed version of "Beneficiary Designation Considerations for Spousal Trusts"

During Hull on Estate and Succession Planning Episode #53, Ian Hull and Suzana Popovic-Montag build on their last podcast regarding succession planning for married couples, and turn their focus to spousal trusts.

They discuss administrative expenses surrounding trusts, the circumstances that lead to surviving spouse litigation, and methods for ensuring the balance between beneficiary designations.