This week on Hull on Estates, Diane Vieira and Craig Vander Zee talk about how to avoid conflict during the passing of accounts.

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In this week's episode of Hull on Estates, Natalia Angelini and Jordan Atin discuss how to deal with assets in the family and how to avoid future conflict.

Estate Planning Tips - Hull on Estates Podcast #80

Posted on October 9^th, 2007 by Hull & Hull LLP

Natalia Angelini:  Hello, and welcome to Hull on Estates Podcast #80 with Natalia Angelini and Jordan Atin.

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.

Natalia Angelini:  Hello.  Welcome to Hull on Estates podcast series.  Its number 80 in our series and you’re listening to Natalia Angelini and Jordan Atin.  Hi Jordan.  How are you?

Jordan Atin:  Oh, I’m doing great, how you doing?  Thanks for inviting me.

Natalia Angelini:  You’re welcome.  So our topic today is flashpoints, problem areas that you should be dealing with then planning your estate.

Jordan Atin:  Yeah Natalia, I mean, it’s a real problem for a lot of people.  But I guess as estates lawyers, we can pretty easily identify what assets, and it’s usually assets, that are going to lead to some problems.

Natalia Angelini:  Right.  And there’s an interesting scenario that you go through in your book, The Family War.

Jordan Atin:  Thanks for the plug Natalia, I appreciate that.

Natalia Angelini:  You’re welcome.  But there’s an interesting scenario that you go through and I’ll just summarize the facts briefly.  What essentially takes place is Dad has 3 children, his daughter Mary and two brothers.  He names Mary as his trustee in his Will and he divides his estate equally between his 3 children.  One thing he doesn’t tend to though is dealing with his pride and joy, his Mustang, I think it’s a Mustang convertible, some kind of car that is appealing to both of his sons.  And, of course, what eventually happens is a big dispute arises over this car.  And what transpires is Mary tries to settle this dispute by having a bidding war between the brothers and that just escalates because each is prepared to outbid the other to no end.  And then scrapping that idea, she tells them if they don’t come to an agreement within a week, she’s going to sell it to a third party.  And that is exactly what she ends up doing and the brothers, of course, are shocked and surprised. They never thought she would actually go through with it.

Jordan Atin:  That’s exactly right, Natalia.  And in fact what happened was, there was so much bad blood between the two brothers that they said to Mary, “Mary, if you speak to my brother, I’m never going to have anything to do with you again.”  And she heard that from both brothers and there she was, caught between her two brothers, with no right answer. And what, I guess is the question, what did the father do that was wrong?  What could he have done and what could estates lawyers have helped him with?

Natalia Angelini:  I mean the obvious answer to that is that he should have addressed that asset in his Will, at a minimum.  And he should have even, in my view, gone beyond that and talked about it with his sons and have arrived at some kind of solution as to how to deal with this car.

Jordan Atin:  This is a bit like King Solomon’s…the problem in dividing the baby.  The thing is, even if it’s in the Will, and it’s one reason why we often include a clause in the Will that deals with personal effects as opposed to residue of the estate, that is, we give some discretion to the personal representative or the executor to deal with personal effects, because we don’t want to be in a situation where we have to value each item and sell them.  But in this case, probably there was no right answer that could have been dealt with in the Will.  They could have said well, give it to the highest bidder or perhaps those would have helped in the sense that Mary wouldn’t have been left trying to come up with a solution.  But in the end, what was going to happen?  Probably one or both of the brothers was going to be upset about the situation.  And I think you’re exactly right Natalia, that the only thing that could have probably avoided this would be for Dad to have spoken with the two kids and said, what do you anticipate happening with this?

Natalia Angelini:  That’s a great point.

Jordan Atin:  The other thing, I think, it tells us is, who wants to be Mary in the situation?  Nobody.  And this is a good illustration of when it’s not a good idea to put one child in charge of other children’s assets.

Natalia Angelini:  That’s right.  I mean, another alternative is to have the estate trustee be someone other than your immediate family members.

Jordan Atin:  One piece of advice I always say is never put one child in charge of another child’s assets, either as a trustee or as an executor, if you can avoid it.  If you think, here’s one where only the Dad really knew what was going to happen.  So if you can anticipate that, and that’s a discussion that the lawyer should have with the father in drafting the Will.  If it’s something that you can anticipate happening, then get somebody else who can be blamed for all the bad things, right?  I mean, you don’t want to leave a legacy of hatred between your siblings just because of what you say in your Will.

Natalia Angelini:  That’s right.  And if you have all of your children be co-trustees, that doesn’t really resolve the problem either.  So I think your point is a good one.

Jordan Atin:  Yeah, if you can find somebody to blame, it’s a good, it’s always a good idea.  The other thing I think this illustrates is, Dad was not as brave as he could have been.  It’s very hard to talk to kids about what you’re planning to do and face the music as it were, as far as what kind of dispute is going to happen.  And here, if Dad had taken the brave path and said to the kids right up front, here’s what I’m planning to do, I think a lot of anguish could have been saved for Mary.

Natalia Angelini:  I agree.  So Jordan, what are some solutions for executors who have to deal with personal effects?

Jordan Atin:  Well, we see this so often, Natalia, as you know.  It’s really a terrible situation because often the real financial value isn’t in the personal effects, but the emotional value is, and the sentimental value. So just a couple of solutions that executors can use.  Let’s say you’ve got a whole list of personal effects.  One thing you could do is have the executor, where it’s supposed to be equal, you can have the executor deal with all of the personal effects and divide them into certain lots and then, you know, draw that randomly for example.  That’s one option.

Natalia Angelini:  So is there another option?

Jordan Atin:  Yeah, there are lots of options.  Another one is that you can…you set it up so that basically the beneficiaries who want a certain item have to purchase it from the estate.  And that keeps everybody honest in the sense that if they really want an item, then they’re going to buy it.  If they’re just getting it, if they just want it because it’s the highest value, then they’re obviously going to have to pay into the estate for that.  And so that’s why it’s crucial sort of at the beginning that you get an evaluation of all the property and then you can set up that option.  And that keeps everybody honest, because we all hear stories about, you know, so and so just wants that because it’s the highest value.  So this way, it keeps them honest.

Natalia Angelini:  Good point, Jordan.  Are there any other tips?

Jordan Atin:  Well I think it’s crucial that whenever you’re dealing with dividing up the personal effects, whether somebody is going to buy the items or you’re dividing it into lots or you’re doing it by auction, that the choice of  the order of the people, that is, if you’ve got 3 children, who’s going to get first dibs, should be done on a random basis.  Because nothing gets kids more upset than when you pick the eldest to go first, or you go alphabetically or something like that.  So what I always recommend is, pick a solution that’s as neutral as possible so that there aren’t those tugs back to the family, like their position in the family for example, the relationships.  Instead, you pick a purely random thing, everybody picks it out of a hat and that’s who goes first.  And you reverse the order, something like that, because you don’t want to be in a situation where you’re dragging back family history that, you know, oh John always got to go first, always got what he wanted on his pizza, sort of thing.

Natalia Angelini:  Right.  That’s even better than some things I’ve seen.  I’ve seen some Wills that say that the kids can select the items as between themselves and that the trustee has to simply ensure that they are divided up relatively equally.

Jordan Atin:  Right.  I mean that’s, you know, the more loosy goosy you make it in the Will, the more room there is for failure and destruction of the family.

Natalia Angelini:  Exactly.  Okay, well I think that wraps up our session for today.  Jordan, it was great chatting with you.  I hope you had a great Thanksgiving.

Jordan Atin:  Thank you Natalia.  It’s been a real pleasure to be here and I know that you had a lot of turkey over the weekend.

Natalia Angelini:  Thanks for noticing.

Jordan Atin:  It was my pleasure.

 Natalia Angelini:  Okay, bye-bye.

Jordan Atin:  Bye-bye.

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.

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/mem

In 2001, Maria prepared her will. In it, she left specific legacies totalling more than $100,000, and divided the residue of her estate amongst various named persons and a charity. Three weeks later, she died.

One of the specific legacies was a $5,000 bequest to Daniel.

Daniel told his superiors about the bequest, and that he intended to accept it as it could not give rise to a conflict of interest. They told him to "hold off" on accepting the bequest until the matter was cleared through the “appropriate department channels”.
Daniel argued that because he did not know of the bequest in advance, and because there could not be the expectation of further services, and no possibility that Daniel could provide special assistance to Maria or her family, there was no conflict. Daniel submitted that he had stopped providing services to Maria long before her death. It was agreed that Daniel had in no way attempted to influence Maria into making the gift.

Did he get to keep the bequest?

No. Veterans Affairs determined that accepting the gift would be in contravention of the federal Conflict of Interest Code.

Daniel grieved the decision through two levels of the internal grievance process, and then applied for judicial review when the decision was upheld at both levels. Judicial review was allowed, and Daniel was allowed to keep the bequest. However, the decision was appealed to the Federal Court of Appeal (“FCA”).

The FCA held that the bequest could give rise to a perception of conflict. The question was whether a reasonable person would think that there was a realistic possibility that acceptance of the legacy could influence the employee’s future performance of official duties. The FCA noted that a pensions advocate is in a position of confidence and influence. The clientele are usually elderly and vulnerable, and often in difficult circumstances, such as the death of a spouse.
The FCA stated that while Daniel could not accept the gift, “the acknowledgment of her gratitude to him for assisting her is effectively communicated to him, and to others.”

Thank you for reading.
Paul Trudelle

During the testator's life his or her assets will have been invested as the testator saw fit, for instance in risky but high return ventures. That entrepreneurial approach tends to be inconsistent with estate and trust principles, where somewhat conservative investment principles tend to be more suitable. For example, diversification is so important in trust administration that it has been enshrined in section 27 of Ontario's Trustee Act, but diversifying may have been the last thing on the testator's mind during his or her lifetime. Some of the fundamental duties of executors and trustees are:

1. the executor must obey the provisions of the Will; 2. the trustee must act impartially between beneficiaries; and 3. the trustee must exercise ordinary care and prudence.

Duties of a director are somewhat different. Section 34(1) of the Ontario Business Corporation Act provides for the following: 1. every director and officer of a corporation in exercising his or her powers in discharging his or her duties shall,

(a) act honestly and in good faith with a view to the best interests of the corporation; and (b) exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.

These duties can come in direct conflict as I will discuss further in tomorrow's blog. Thanks for reading. Sean. --------