In this week's episode of Hull on Estate and Succession Planning, Ian and Suzana consider the other factors to consider in the succession agreement.

Click "Continue Reading" for the transcribed version of this podcast.

This week on Hull on Estate and Succession Planning, Ian and Suzana continue talking about cottage and recreational properties.

Click "Continue Reading" for the transcribed version of the podcast.

Arranging an Agreement on Cottage Property - Hull on Estate and Succession Planning Podcast #77

Posted on September 11^th, 2007 by Hull & Hull LLP

Suzana Popovic-Montag: Hi, and welcome to Hull on Estate and Succession Planning. You are listening to Episode #77 of our podcast on Tuesday, September 11^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: Hello Suzana.

Suzana Popovic-Montag: Hi there Ian.

Ian Hull: Boy, it’s hot in the city these days. Very weird. We’ve just come out of the summer thinking it was going to go into the fall and a little cooler. And we had some weird weather last week but no complaints.

Suzana Popovic-Montag: And kids are all back to school, so it’s a great time of the year.

Ian Hull: That’s right, it couldn’t be busier. So it’s nice to sit back and take a deep breath, talk a little bit about some estate stuff, get recorded doing it. And on today’s podcast, I thought what we might do is just continue through our working theme of cottage property, recreational properties. I know on the last podcast we were focusing on at the end the fund for maintenance and repairs and improvements: (a) the importance of it and; (b) just some of the mechanics behind it. So, why don’t we just take that point and develop it a little further. Because this all ties into the agreement that works for everyone, and how you create the agreement that works for everyone. So what about the funds for maintenance and repairs and improvements?

Suzana Popovic-Montag: Well, Ian, just like any agreement or contract or arrangement, you want to make sure that the terms would set out how this fund is actually to be used, what for and maybe even consider listing specifically the certain types of maintenance and repairs that would be done out of the funds that are in this arrangement.

Ian Hull: That’s so important because you can sometimes get into a debate as to whether or not, say some part of the family comes up and they use the boats and kayaks and canoes and the other part of the family use it, the cottage, but they never touch the waterfront because they like playing baseball in the backyard or something. And then there’s a dispute as to, well who has to fix the boathouse when it starts to fall apart? So identifying that can be a really helpful tool.

Suzana Popovic-Montag: And you could also set out, I think in these kinds of arrangements, how different co-owners or the people that you have made or named beneficiaries of the cottage, could vote or agree or consent to certain major repairs or improvements being made.

Ian Hull: That’s a good idea because even if you try to document and list as best as you can, you’re going to miss something. You’re either going to miss a category or an event. And so then what you’re saying is you just throw in a mechanism that allows the group to decide beyond that.

Suzana Popovic-Montag: The terms, I think, would also have to address the fact that, you know, the reality that perhaps the fund that’s set up or the agreement that’s made, may not last forever. It may not be sufficient. And, you know, in those circumstances, you might want to consider what happens then.

Ian Hull: Absolutely, because then really what you have to do is set in a mechanism to start taxing the group of owners, in a sense, to keep the fund going. These maintenance funds for property are hard enough to set up, but it’s also hard enough to find the money at the front end to do it, especially when you don’t even know what to predict. If it’s going to be worth $2,000 a year in repairs, or is it going to be $20,000?

Suzana Popovic-Montag: That’s right.

Ian Hull: So one of the things that, you know, we have seen our clients do is literally create a formula that develops over the lifetime of the agreement, knowing that expenses will go up and knowing that they often, at the outset, the initial expenses can be heavy because maybe once you take the cottage over, or you buy the cottage from your parents, or whatever, you have to do the kitchen because the parents have not done anything with it for 30 years or something. So there may be some up front expenses that you can agree on. And then you’d want to just create this funding mechanism by saying every year, x% is going to come in from the fund from your own sourcing.

Suzana Popovic-Montag: And I think as a concept, that makes a lot of sense, and that’s why, you know, we can all agree up front that these kinds of things are necessary, we should be anticipating them. But unless you’ve actually, you know, put it pen to paper and somehow encapsulated that agreement, it just will open up the possibility for disagreements at the end of the day, I think.

Ian Hull: So, speaking of disagreements, how do we…we’ve said we’ve got the thing identified, we’ve got hopefully the categories. And if we’ve missed a category, we’ve got a mechanism to revisit the expense and how it’s going to be paid. What about the decision-making process though? Like, what sort of tricks and tips can we add to the agreement to help with that?

Suzana Popovic-Montag: Well I think, Ian, the terms should specifically set out how it is that these decisions are going to be made for the property. And if you’ve got a trust arrangement, for instance, it might be the trustees who are making all of the decisions. And if you’ve got more than one trustee, you have to decide if they can act either unanimously or just by majority. Those kinds of mechanisms where people can suddenly have a definitive answer being made by an identified group of people.

Ian Hull: And, you know, we can sometimes work outside the box a little bit and think about how you want to create this decision-making chain or process. And the terms of the trust can also provide that for certain matters, the consent of certain groups of beneficiaries, for example, possibly adult beneficiaries with a direct interest in the property, would have to be required. And so you have to…you’re forced to go to those who are directly going to benefit or it’s directly going to cost them, to get their consent before you can go put a new second floor on the cottage or something.

Suzana Popovic-Montag: And if you’re in a situation where you’ve got maybe a co-ownership agreement, then maybe that agreement itself can say that, you know, perhaps a majority of the owners are the ones that make the decisions.

Ian Hull: And that co-ownership agreement is, I think, one of the most important…it’s like the shareholders’ agreement in a good corporate situation. They are just such vital documents and if they’re done right, they are so effective.

Suzana Popovic-Montag: And I think in those cases, you know, you want to make sure that major decisions and things like, for instance, ultimately deciding to sell the property or an interest in the property, in that kind of situation you may want more than just a majority or you might want actually unanimous approval by all the owners, because it is such an important decision.

Ian Hull: And there’s also this twist that with these co-ownership agreements, and sometimes this idea is missed, is that you want to set out who will specifically act on behalf of minors who have an interest in the property. You’re almost what we call appointing a litigation guardian, so to speak. But you’re trying to anticipate that everyone who has a financial interest in the process is at least at the table and who are the representatives at the table. There’s some legal consequences of just randomly picking someone, putting it in an agreement. So we don’t want to worry about getting into the mechanics of that too much, but I just think that they have to dovetail that out too, and think about the minor children’s interests and how you’re going to deal with it on this. And again, we’re talking about major moves, like the sale of the property and the like.

Suzana Popovic-Montag: I think the agreement as well should speak, at least to some extent, about the assignment of responsibilities.

Ian Hull: That’s a great idea because the terms of the trust or the co-ownership agreement, if they set out who is responsible for dealing with the routine matters such as paying the bills and that, it can actually bring a lot of peace, because we all know in our own lives that, you know, typically in a situation where there’s a busy family, someone has to pick up the bills and someone has to deal with that issue. And if you don’t identify who’s got the sort of core things, if the pump breaks, who’s going to be looking after it, who’s going to take over, who’s got the connection to the handyman or however. And you might want to set those responsibilities right out in the agreement.

Suzana Popovic-Montag: And if you’ve got a trust, then usually it would be the trustees I think who would be the ones who are, you know, given the responsibility to do these things. And in perhaps a co-ownership agreement, it might be a particular owner who’s going to be given the responsibility for, as you say, paying bills or doing whatever is necessary to maintain that property.

Ian Hull: And when you’ve got a co-ownership agreement, as opposed to a trust, you can even, you know, take the load off the shoulders of the one family every year and, for example, set up rotating responsibilities for one of the co-owners from one year to the next, or maybe for a five year period. It is difficult, because sometimes you have to develop personal relationships with the people that are going to help fix the place or deal with you or your neighbours and so on. But sometimes people get angry about the fact that they’re doing all the work and so what you do is you agree to rotate the job.

Suzana Popovic-Montag: And I think specifically, you know, given that this is usually a recreational property, the fact that, you know, somebody is viewing themselves as having to do more than others to enjoy the property, could lead to that tension. So actually building in some kind of mechanism, or at least turning your mind to the possibility, is a great idea.

Ian Hull: Okay, well I think there’s some more ideas that we have on the whole, well the terms of the trust or the terms of the co-ownership agreement, we can talk maybe about in our next podcast, about scheduling the use of the property, talk about the consequences of defaults should they occur, and some of the other ramifications that you may want to consider in the context of a co-ownership agreement. So why don’t we save that for our next podcast and 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.

In this week's episode of Hull on Estate and Succession Planning, Ian and Suzana talk about capital gains taxes and what you need to know about them relating to the family cottage.

Click "Continue Reading" for the transcribed version of this podcast.

Posted on August 14^th, 2007 by Hull & Hull LLP

Suzana Popovic-Montag: Hi, and welcome to Hull on Estate and Succession Planning. You are listening to Episode #73 of our podcast on Tuesday, August 14^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?

Ian Hull: I’m just terrific thanks.

Suzana Popovic-Montag: That’s good.

Ian Hull: We have been working our way around this potentially thorny issue of the family cottage.  And while we have not pretended for a moment that we have great tax expertise, we wanted to today talk a little bit about the capital gains tax, what you need to know about capital gains taxes and some of those issues relating to the family cottage.

Suzana Popovic-Montag: Ian, you might recall during our last podcast, we were talking about the fact that family dynamics and emotions play such a strong role when we deal with these cottage issues in estate litigation matters. But I think that next to that, that family dynamic component to it, the other most significant issue really is the capital gains taxes that arise from these kinds of recreational properties.

Ian Hull: And while you can buy or sell your principal residence, the home or the condominium that you might live in without paying capital gains taxes in Canada, on that increased value, you do have to pay capital gains tax on secondary cottages, properties such as the cottage or the chalet or other recreational properties. 

Suzana Popovic-Montag: The key exception, though, is when you actually leave this property to your spouse, so that the taxes in that case are actually deferred until your spouse dies. And I know that this is referred to as a spousal rollover.

Ian Hull: But except for that exception, if your vacation property has appreciated in value and your estate may, of course, face a significant tax bill. What we want to talk about a little bit is, you know, what if that tax liability isn’t covered.  What do we do?

Suzana Popovic-Montag: And Ian, do you think it would be helpful maybe just to talk a little bit about how that capital gains calculation is actually done on a property?

Ian Hull: For sure, because let’s just use an illustration.  Because, of course, if your beneficiaries have to sell the property to pay the taxes, then your estate plan may not be exactly what you had hoped it to be. So here’s an example of how you might calculate a capital gains tax on a property.

Suzana Popovic-Montag: So if you start, let’s say, with a property that was purchased back in the 1970’s.  Let’s say that the cottage was actually bought for $50,000.

Ian Hull: So in 1985 though, of course, you’ve had to spend some money upgrading.  And let’s put a number of, say you paid $50,000 for the cottage and you spent by about 1985 about $30,000 in upgrading it, putting a little addition on it and that sort of thing. 

Suzana Popovic-Montag: And then you look at what the property is actually worth the day you want to sell it and that’s the fair market value of the property.  And let’s suppose that now the property has been very successful in appreciating in value and now it’s worth $600,000. 

Ian Hull: So you take the sale price of the $600,000 and then you take off from it what we call the adjusted cost base.

Suzana Popovic-Montag: And that adjusted cost base is comprised of, you know, what that property actually cost you when you originally bought and what value you’ve added to it since you purchased it. And that, in our example here, we talked about the $50,000 being the purchase price and the additional, you know, upgrades to the property of $30,000, for a total of $80,000 in terms of the cost base of the property.

Ian Hull: So you’re allowed to deduct that cost base off the $600,000 sale price, leaving you with a resulting capital gain, not a capital gains tax, but a capital gain of $520,000. 

 Suzana Popovic-Montag: So since you’ve purchased that property, it’s technically appreciated in value by, you know, $520,000. And so if you look at the current capital gains tax rules, at least here in Ontario, 50% of that increase in value, that capital gain, is gonna be taxable.

Ian Hull: So just using our example here, remember we said that there was a capital gain of $520,000, 50% of $520,000 would be $260,000.

Suzana Popovic-Montag: And that $260,000 then becomes taxable at your highest marginal tax rate.

Ian Hull: So if the highest rate, for example, would be 45%, you’d have to pay a tax of $117,000 in capital gains tax.

Suzana Popovic-Montag: And that, of course, raises the question at the end of the day as to whether or not your estate has sufficient cash to pay that tax liability without maybe having to sell that property or coming up with the cash some other way.

Ian Hull: ‘Cause if not, you’re potential heirs and the family could lose what is often a cherished asset that you never intended to have sold on the day of your death. 

Suzana Popovic-Montag: But the good news, though, is that, you know, with some advance planning, turning your mind to these possibilities and the fact that this could arise, you can actually arrange to cover that anticipated tax liability with some creative estate planning.

Ian Hull: Alright.  Why don’t we talk about those?  And let’s start with the first.  You know, we’ve got to really essentially manage the taxes.  So the first idea is, and we’ve used this example in the past, is the idea of life insurance. 

Suzana Popovic-Montag: And life insurance, Ian, really is one of the most I’d say straightforward methods of trying to cover your vacation property tax liability when you die. Because what you’re doing is you’re purchasing life insurance for that very purpose.

Ian Hull: So your estate would receive as a death benefit, a tax free death benefit, the life insurance proceeds. And those proceeds can be used to pay the capital gains tax liability and any other administrative fees and expenses that are associated with settling your estate.

Suzana Popovic-Montag: And the clearest advantage of that then is that you have the comfort of knowing that your family’s not going to have to sell your cottage or your vacation property and that at the end of the day, they’ll actually receive a larger estate.

Ian Hull: Now in terms of managing taxes, there’s another sort of series of steps that you can think of.  And we sort of qualify them under transfers during your lifetime.

Ian Hull: And so Ian, as you say, it’s another way of actually managing the issue by proposing to deal with your property during your lifetime as opposed to transferring it on death. And it has some advantages do that kind of operation as well.

Ian Hull: So besides selling the property maybe to your family members outright, there are several ways to consider transfers during your lifetime that will help manage the tax.

Suzana Popovic-Montag: And one of the clearest examples that comes to mind is actually gifting the property to the people you intend to get it.

Ian Hull: Another example is making one or more of your children joint owners of the property with you.

Suzana Popovic-Montag: Or even by transferring the property to a trust where you can actually name your children or the other family members as beneficiaries of that trust.

Ian Hull: So if we step back with these three different options and we’ll work through these in some detail. But all three options will trigger an immediate capital gain in your name.

Suzana Popovic-Montag: So when you do transfer the property during your lifetime, suddenly that tax liability is gonna be crystallized and it’s gonna be your responsibility as opposed to that of your beneficiaries.

Ian Hull: Alright.  Let’s turn to the gift idea.  So if you can afford to pay the capital gains tax yourself that’s been accrued to death, and we’ll come back to our example before.  It’s a significant number, it’s $117,000 on what is a $600,000 property. And you can afford to pay that capital gains now and you want to sort of defer the future gains to the next generation.  You may want to consider gifting the property to your children.

Suzana Popovic-Montag: And the effect of gifting the property really is to trigger an immediate capital gains tax that, as we said, you know, would be your responsibility to pay that, which is gonna be taxable in your hands.

Ian Hull: So the long and short of it is you gift it, you pay the tax, you better have the dough at the time you’re gifting it or else this plan doesn’t really work. 

Suzana Popovic-Montag: The good news, though, is that the future capital gains on that property, so if it continues to appreciate in value, that future gain is going to be the responsibility of your children.  And it’s not going to be taxable until they in turn either die or sell the property. So your death is not going to trigger any tax liability to them.

Ian Hull: So an added bonus is that Land Transfer Tax…there’s an extra tax that often applies when you transfer properties.  But it doesn’t apply when there’s gifts and when there’s an estate in that situation. 

Suzana Popovic-Montag: And there’s the added benefit also to your estate of avoiding probate fees at the end of the day which, you know, in most provinces here in Canada, are payable based on the value of your estate.

Ian Hull: Alright, let’s turn to the idea of a sale.

Suzana Popovic-Montag: Well, Ian, you can certainly choose to sell your property to, you know, a non-family member or even family members during your lifetime.

Ian Hull: So if you do this, it is usually best to sell the property at fair market value from a tax standpoint.

Suzana Popovic-Montag: And why do you say that Ian?

Ian Hull: Well because you’ll still be charged the capital gains tax on the full market value even if you sell it for less. So if you try to give your child a benefit of a lower price then the differential between the actual fair market value and the lower price that you give to your child will be taxable like the gift that we just talked about.

Suzana Popovic-Montag: And in addition to that, the adjusted cost base that we talked about, you know, the original cost of the property plus any value that you’ve added to it, that adjusted cost base is going to be what your family members are going to be presumed to have paid for it. And it’s not the fair market value that they’re going to have attributed to them.  So they could possibly end up paying a hefty capital gains tax bill down the road.

Ian Hull: So you’re sort of, you know, you don’t get that far ahead if you try to do the sale route from the tax standpoint. But anyway, why don’t we at this point, wind up our podcast for today.  We’ve touched on some of the issues and there are more issues to address in the context of the transfer of the cottage property and we’ll save those for our next podcast.

Suzana Popovic-Montag: Okay.  Well thanks very much, Ian.  I look forward to our next podcast.

Ian Hull: Thanks Suzana.

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.

Read the transcribed version of "Vacation and Recreational Properties"

This week on Hull on Estate and Succession Planning, Ian and Suzana discuss litigation involving vacation and recreational properties. This is an emotional as well as a legal issue. They talk about the realities of passing properties on to younger generations.

Click "Continue Reading" for the transcribed version of this podcast.

Posted on August 7^th, 2007 by Hull & Hull LLP

Suzana Popovic-Montag: Hi, and welcome to Hull on Estate and Succession Planning. You are listening to Episode #72 of our podcast on Tuesday, August 7^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.

Suzana Popovic-Montag: Hi there Ian.

Ian Hull: Hi Suzana.

Suzana Popovic-Montag: How are you today?

Ian Hull: I’m just great thanks.

Suzana Popovic-Montag: That’s good.

Ian Hull: Well, why don’t we talk about, on this hot summer that we’re having here in Toronto, a little bit about the vacation properties.  Not just cottages, but recreational properties generally. And I thought it might be fun to do…might take a couple of podcasts to do this but let’s work through this important issue in the context of estate planning. 

Suzana Popovic-Montag: I know certainly in our last podcast, Ian, you gave some great examples about these situations where they arise in real life where people are fighting over these exact kinds of properties.  And I just mention in passing that I noticed, certainly in my own practice, that these kinds of fights are becoming more and more common than even, you know, I would have imagined.

Ian Hull: So while a vacation property such as a cottage, for example, can certainly provide years of fun and pleasure for your family and during a lifetime. And it really is a goal of many owners to ensure that younger generations continue to enjoy these properties and so on. This transition to the next generation…well first of all, being able to own recreational property is a real luxury in that sense.  But the transition is also sort of an important part of the process.

Suzana Popovic-Montag: And why do you say that, Ian?

Ian Hull: Well, keeping a vacation property in the family has really become both an emotional and a legal issue. Because you, just by virtue of its unique characteristic, you create interesting emotions to the property itself.  It’s not just like the house. Certainly in our experience, when we see people fighting over property, over estates, almost always the sale of the family home goes without a hitch. But where the tension can arise is the sale of the cottage.  And that’s because often the younger generation has grown up in the environment and they’ve created fond memories and so forth, so that really at the end of the day, this isn’t just a piece of real estate, this isn’t just a GIC, this is part of their past and can attract a very different emotions.

Suzana Popovic-Montag: I think just to add to that there’s also the fact that recently there’s been such an escalation in property values.  And when you’ve got a piece of property in a very good area, that might mean that suddenly there’s much more than just an emotional attachment.  But there might also be a financial consequence to this property as well.

Ian Hull: And for sure.  We’ve seen lots of files where the estate is, a substantial portion of the estate is actually the recreational property.

Suzana Popovic-Montag: And what this will result in is potentially having a very onerous tax liability that can arise for your children or your family.  And, you know, it’s something that is just a reality and we’ve got to be able to plan for it and see what we can do to protect against being, you know, surprised at the end of the day.

Ian Hull: Well that’s right.  This whole high cost of buying out a family member who doesn’t want to own the property or, or (…) and allow it to be passed to another generation. We talked about in previous podcasts the use of interesting estate planning tools like insurance products and things like that. But it is a really live issue. So that overall, the costs of the buyout can in fact result in or unfortunately can leave for the sale of the property.  And that in and of itself may not be what you ever intended to happen in the estate plan.

Suzana Popovic-Montag: I think, Ian, it might be helpful to sort of discuss some of the strategies that we can think of or suggest to people for preserving the actual vacation property, the cottage property for the next generation, and some of the choices that might be available to individuals who are dealing with these kinds of assets.

Ian Hull: Okay, well then let’s talk about things like discussion with your…we’ve used…we’ve certainly talked about the theme of discussions with your heirs.  That’s one part of it.

Suzana Popovic-Montag: And I think we should maybe address specifically what, you know, the capital gains taxes can arise in these situations, and how we might have some strategies for considering how to maximize the use of products to minimize the insurance hit…or sorry, not the insurance…the tax hit at the end of the day.

Ian Hull: And certainly that managing of the taxes is so fundamental.  And then talk about transfers on death by way of, you know, joint tenancy, or a gift in a Will is another option or transfers prior to death by way of what we call inter vivos or pre-death transfers to one of the children who actually want the property and can afford to buy it out. I use that example because I had lunch the other day with a good friend of mine who’s got five kids in his family.  And sure enough, one of the kids bought out the grandmother’s property.  And adjacent to that was their family cottage where they grew up, his mother, the sister, obviously the daughter of the mother. And I asked him, I said, you know, does it bother that you’re brother just bought your grandmother’s cottage?  And she said no, you know, it doesn’t bother me because she said ultimately I think I’ll probably try to buy my mother’s cottage. And I don’t know that my other siblings want that cottage either because they all have their own cottages now, so it may not even be an issue. But I sort of had to test the waters and see if she was upset by that.  And I was pleased to see that that transition is working very well.

Suzana Popovic-Montag: You’d be surprised how these things can work out with a little bit of advance planning and obviously, you know, the frank discussion amongst the individuals who are affected by it.

Ian Hull: So finally, what we want to talk about is how to create an agreement that works for everyone. And you can’t just create these things with paper.  You have to have done your homework.  You have to have had your discussions.  You have to have done your work managing, looking at managing the taxes, managing the emotional issues on the transfer and so forth.  And talk about the different legal options you have pre-death, post-death, to transfer the cottage.

Suzana Popovic-Montag: If we turn, Ian, to, you know, the first step that we talked about, you know, the discussion with the family members. When you want to deal with these property transfers, it really is key to really talk to the individuals who are going to be affected by it. Because you might have all these preconceived perceptions of what you think someone’s going to think or feel, but that may not actually be the case.

Ian Hull: Because there’s a chance that they may not even want the vacation property, for instance.

Suzana Popovic-Montag: And so your adult children may actually just enjoy using it now but not really have an intention or an expectation at the end of the day that that property is there for them.

Ian Hull: And another option is too that some…your children may not be actually interested in sharing the cottage, in going through sort of a co-ownership arrangement.  And you won’t know this unless you’re asked.  And certainly the co-ownership arrangements are much more fragile once you’re gone, I can tell you that.  Because often the parents, who have held the cottage originally, are the glue that hold those co-ownership agreements, even with adult siblings, together.

Suzana Popovic-Montag: And so as an alternative to that co-ownership arrangement, you might just want to look to leave an equal share of the value of the vacation property to each of your children.

Ian Hull: But if someone wants to keep it and some want to sell it, then the ones that want to keep it may not have the cash of the others.  But you can start to do the math on this and really see if there are creative solutions that the children can come up with after you’ve passed away.  As long as you’ve divided it equally and given everybody sort of enough economic strength to consider their options.

Suzana Popovic-Montag: And that’s really important because you wanna protect against the possibility that, notwithstanding all of the planning you’ve done, your wishes might still be overturned and the property may still have to get sold in any event.

Ian Hull: So, if the plan is that a number of family members will share the vacation property, a mediator is also a useful resource in coming up with the sharing agreement. With the help of a good solicitor as well, these are sort of tools that you can consider in developing this shared ownership arrangement.

Suzana Popovic-Montag: And I know one of the things that we’ve done, Ian, recently in one of our past experiences is we’ve actually used an anonymous process by which we’ve canvassed people in terms of what they would like to happen with the vacation property. And that’s been good in terms of allowing everyone to honestly say what they do or don’t want to happen, and yet not have anyone, you know, stigmatized with that view being attributed directly to them.

Ian Hull: So let’s think about the mechanics of that. How, and I know we’ve done this before, but let’s explain just briefly what…how we’ve sought out that anonymous sort of input. And one of the ways we’ve done it, quite frankly, is through the family meeting process, where we know it’s an issue and we allow in a caucus and not in an open session, discussion about how each one of the individual players wants to deal with the property and not then come back in, and then come back and sort of somehow dovetail to all the various positions and all the various wishes.

Suzana Popovic-Montag:   And that’s made it more easy for individuals to be honest and to get, you know, their positions out there without having someone, you know, staring them across the table and attributing, you know, different thoughts to that desire. And it makes it more easy for people to be comfortable and honest with what they really want to happen.

Ian Hull: And so…alright, we talked early about, you know, briefly about what you need to know about capital gains.  And this is, you know, it’s a Canadian issue.  Certainly in the US, they deal with the tax situation much differently. But across Canada, the capital gains tax on recreational properties can be, as we’ve said earlier, an overwhelming issue. So why don’t we, for our next podcast, begin to sort of analyze in some more detail what we need to know about the capital gains taxes and work through some of this process.

Suzana Popovic-Montag: That’s a great suggestion, Ian, particularly given that, you know, apart from the actual family dynamics of who’s going to get the cottage at the end of the day; this, I would say, is the most…second most important issue that people want to consider.

Ian Hull: Alright, well that’s great.  Thanks so 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.

Read the transcribed version of "Partition in Sale Proceedings"

In this episode of Hull on Estates, Natalia and David have a discussion about partition in sales proceedings, and use the case of Suttick and Schwenger, which deals with a family cottage.

Click "Continue Reading" for the transcribed version of this podcast.

Posted on July 24^th, 2007 by Hull & Hull LLP

David Smith: Hello and welcome to Hull on Estates. You’re listening to Episode #69 of our continuing podcast series.

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.

David Smith: Good afternoon Natalia.

Natalia Angelini: Good afternoon David, how are you?

David Smith: I’m doing well Natalia. Natalia, I understand that the topic that we’re going to talk on today is Partition and Sale Proceedings, particularly as they relate to estate matters. And in particular, there is a decision of a newly, a relatively newly appointed judge, His Honour Justice Newbold in the case of Suttick and Schwenger.

Natalia Angelini: That’s right.

David Smith: I wonder, perhaps in terms of going on with this matter and talking about it in some detail, can you give us a little summary of the fact situation?

Natalia Angelini: Sure.  Essentially what happened here is we have the unfortunately all too common situation where the family is fighting over the cottage. And in this case there was a husband and wife, husband pre-deceased the wife in 1985.  And the wife ended up dying in 2002.  And her three children were beneficiaries under the terms of her Will of the family cottage. And they were to be owners of the cottage as tenants in common. And what happened is the cottage had a west lot and an east lot.  It had been severed years prior and what the children had decided to do was to have a new cottage built on the east lot by the sister. So we have two brothers and a sister. The sister, let’s call us Debra.  Debra was to build this cottage on the east lot and she was to have exclusive use of that cottage with her husband. And there were a lot of facts in dispute in this case.  But what we do know is that a dispute arose between Debra and her brother Charles who was building the cottage for her.

David Smith: That’s right, Natalia.  I’ll just pop in at this point and just sort of make the observation that potentially, there’s potential here for really complicated litigation.  Because as I understood the fact situation Charles, who was an architect by training, had designed and built the cottage which had a lot of problems with it and was not something that Debbie particularly liked. Notwithstanding the fact that it was on the east half of the lot, whereas the west half of the lot was the family cottage in which Charles resided. And so you had this classic situation really where, because of the nature of the property, it was on a peninsula, and was bordered on each side be water.  It was really an ideal situation to divide the lot in two and give one half to one sibling and one half to the other sibling, wasn’t it?

Natalia Angelini: That’s right.  But unfortunately, when you’ve got strive between brothers and sisters, you know, in this case at least, it just didn’t work out that way and couldn’t work out that way.

David Smith: I think also probably it was complicated by the fact that the Will provided an equal three way split among the siblings, right?

Natalia Angelini: That’s right.  And Charles and the other brother argued at the hearing that the mother’s intention was that if they could not share the cottage, that one sibling or another could buy out the other. And he relied on a document signed by his mother that was made a couple of years after her Will. And the court found that it was not a testamentary document.  And her intention as stated in the Will was clear that it was to be owned equally by the three of them as tenants in common. 

David Smith: What did the Judge ultimately decide then, Natalia?

Natalia Angelini: The Judge ultimately decided that the property should be partitioned.  And the brothers had argued that that would not be possible because it had already been severed years before. But the Judge found that a severance with the approval under the Planning Act is still different from a partition and that the partition could take place. And so what he decided to do was to grant the west part of the land to Debra and the east part to the brothers to share together. And keep in mind, the brothers had always expressed an intention that they could own it jointly. 

It’s interesting what the Judge did here because he really took all the factors into consideration when making his decision. One of the things he considered was the brothers’ desire to have a right of first refusal and have the property simply sold.  And he rightly, in my view, took into account that Debra would have been the only person losing out from that scenario because one of the brothers was significantly more wealthy than her and would have been able to buy the property. And not only that, I think it was clear that no one wanted this property to go outside of the family members, so that was another consideration. In addition, the brothers had wanted a right-of-way over the east lot if Debra had received the east portion of the land.  And His Honour, I think quite astutely, recognized that any contact between these siblings by granting a right-of-way would just lead to further complications.

David Smith: That’s right.  I think underscoring the whole issue here was the conflict between Charles and Debra.  Certainly the third brother was a bit neutral in the whole proceeding. What the case I think is useful for, and especially in the estates context, and I’d like to sort of segway now into sort of a general observation about estates and the usefulness of partition and sale proceedings. Certainly in our practice, Natalia, you and I both see many fights between siblings surrounding the family cottage. It really is a flashpoint for dispute, isn’t it?

Natalia Angelini: That’s absolutely right David.

David Smith: And as you pointed out in the Judge’s decision, there’s often a really emotional attachment to the property.  It may have been held by the family for generations. And so given a choice between partition and sale, it’s not really surprising, is it, that this Judge chose partition rather than sale, is it?

Natalia Angelini: Right.  It was the right result.  And not only that, under the Act and in the authorities, it’s clear that a partition should be ordered unless an injustice would result.

David Smith: Right.  And I think the preference is going to always be for partition when you’re talking about a cottage. Probably the other complication, we touched on this early, is on the one hand you’ve got the fact that the property is held in a certain way on title.  And then the complication is always the manner in which the Will speaks to the division of the residue. And here you had a three way split which the difficulty proved to be, how do you reconcile a three way split under the Will with a division of a property?  I mean it didn’t make sense here to divide the property three ways, did it? Because only, if you divide it three ways, the only way that would work would be for the person receiving the middle of the three portions to be without waterfront access.  And clearly that was not going to be desirable.

Natalia Angelini: Right.  And I think in this case, they were fortunate that Debra was happy to have either lot.  And so the Judge had some flexibility there.

David Smith: I think, you know, the other point here to and just as a general observation again from the context of an estate litigation lawyer, is the threat here that the property would be sold.  To my mind, it was really surprising that this even went to a hearing, because it’s conceivable that the Judge could have ordered a sale.  And that is what surprised me most about this case.  And any case like this is that the parties don’t or are unable to settle a case like this at mediation because it’s potentially tragic.  I mean, there’s no certainty that the Judge would do what you and I both felt was the right thing. Then again, you have to think that a lot of Judges may well be cottage owners and can have some real life experience that will allow them to consider how to resolve this kind of dispute in the best interests of the parties.

Natalia Angelini: Right.  And I think His Honour definitely picked up on the nuances in this case and came to the right result. Although I’m sure the brothers would disagree since they didn’t really get everything they wanted.

David Smith: Well that’s right.  I mean, I think their pitch was look, let’s all just share the cottage properties.  But it was clear that the relationship between the sister and the brother was not going to be amicable, certainly from her point of view. And I guess in closing what we maybe should just touch on Natalia, is perhaps the answer is obvious.  But let’s just pose the question. How do we avoid or how does a testator avoid this kind of conflict arising after he or she has passed away?

Natalia Angelini: That’s is a really great question.  I think it would call for prudent estate planning which is beyond the ambit of this podcast.  But I will say that at a minimum, that having a family conference where the children are apprised of the terms of the Will and the wishes of the testator are expressed, might go some way to help.

David Smith: Right.  I’d like to point out also for the benefit of our listeners, on our website in the Blogs directory, my recollection is fairly recently in the last month or so, I think Justin and Megan of our office either podcasted or blogged on the issue of how to avoid cottage fights.  And so it’s something to look for on our website. 

And so, Natalia, it was fun podcasting with you.  I’ll look forward to doing it again at a future time.

Natalia Angelini: Ditto, have a good day.

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

Read the transcribed version of "Real Case Studies"

This week on Hull on Estate and Succession Planning, Ian and Suzana talk about some of the real-life case studies that they encounter every day. They  go through a case that tore a family apart: Rose v Rose, in a case over the family cottage.

Click "Continue Reading" for the transcribed version of this podcast.

Posted on July 24^th, 2007 by Hull & Hull LLP

Suzana Popovic-Montag: Hi, and welcome to Hull on Estate and Succession Planning. You are listening to Episode #70 of our podcast on Tuesday, July 24^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.

Ian Hull: How are you doing?

Suzana Popovic-Montag: I’m good thanks, how are you?

Ian Hull: I’m just great. We’re, as we are working through our summer podcasts, a couple of things have come up. I was at a conference just before the summer.  And someone came up to me and was asking me about a specific case.  And they said to me, you know, they tried to tell me…well they went ahead and told me their story and their concerns about their own personal families.  And they said, you know, do these things really happen in real life? And, and it sort of struck me that I thought what might be fun to do for a couple of podcasts is just talk about a few cases that are of some note. That, not to get overly legalistic about the cases and what the judges are doing, but tell a bit about the story, about what happens out there, what we actually see day in and day out in the courtrooms unfolding. And it’s real family drama as we’ve said.  And we spend a lot of time trying to avoid these family dramas.  But I just thought it might be kind of fun to talk about a few of the cases that actually do land in the system, so to speak.

Suzana Popovic-Montag: I think that’s a neat idea Ian, because so many times, you know, we take these fact scenarios for granted basically, because we’ve seen so many.  And a lot of them have, you know, some common themes.  But everyone is still fact specific. But the individuals who are actually living through these difficulties, through these trying times, for them this is their one and only. And it’s really important for us as, you know, when we’re involved, to keep those kinds of things in mind.

Ian Hull: So, one of the things that we talk about and we’ve talked about on different podcasts is the family tensions that get created by what are essentially, some consider may be luxury items or recreational properties. And I was privileged to be interviewed by the Globe and Mail, and I was quoted in an article on Friday, June 29^th, about a case about a family cottage fight. And that was the case of Rose vs Rose which is, the headline calls it a “Lakeside War of the Roses”.

Suzana Popovic-Montag: And what was this case about Ian?

Ian Hull: Well it was a case about a family and how to divvy up or to split up, and as it turned out to be, the family cottage. And what was interesting, not as much about as I say.  I’m not sure it’s all that interesting for us today to go through all of the facts and the law and all of the stuff that really resulted of some note to our day-to-day practice. But more importantly, to see some of the themes that flow through this case and some of the other cases we want to talk about. 

And this case was a classic situation where a trust was arranged for the kids to enjoy the benefit of a cottage that was held in the trust. And sure enough, for…we won’t, as I say, for a variety of reasons, the trust had to be wound up. And in the course of winding up the trust, the big question came up.  What do we do with this asset? And in a lot of trusts, you might set them up with putting shares in a company.  Or say it’s a new venture and you start a company and you put shares in it or something like that. But in this case, of course, the main asset was the cottage itself. And that was the source of tension in the context of the wind up of the trust. What do we do with this asset? Short question was who gets it? And I just thought it was an interesting point.  I mean, this case is obviously become a bit of a flashpoint for people.  And I think it sends a couple of messages. One is, is that we can never forget that when we do bring these family estate planning disputes to the forefront, it can become particularly public.  And in this case, it became so public that, well, lots of the lawyers knew about it.  But then it was interesting enough even for the Globe and Mail to write a small article about it. So, you know, we want to try to create an estate plan that doesn’t cause a family fight.  But again, add the extra layer of what might be seen by some as some embarrassment for having got there…drag their dirty laundry through the media is another, you know, sort of side issue.

Suzana Popovic-Montag: I think another thing to keep in mind as well is that, you know, these fights are not always based on just the money.  But many times there’s also the principle and we’ve heard that in many, you know, situations. As well as the emotion that underlies certain assets that mean special things to different people.

Ian Hull: Okay.  So that was the first case that we sort of struck us as one that was worthy of mention. Let’s talk about another case.  One of the other cases that has come up over the last little while and we’ve talked about, and I just want to briefly remind everyone about, was just that case about what happens with joint accounts. And we don’t need to get into that anymore than to say that there has been that significant development.  And again, that was a real life situation. When we’re setting up joint accounts and the Supreme Court of Canada in the case called Pecore came down pretty clearly on that. 

One of the things that we talked about in some of our, in the process of trying to create good estate plans, is to be current and to stay on top of things. And there’s a case that came out in the last year or so called Webster vs Webster.  And in that case, they talked about limitation periods and equalization payments and some of the things, the family law questions and all of that. And again, we’re not trying to get to esoteric about the law about it.  But it was an interesting case in the sense that it reminds us that should we face a situation, as may be unfortunate as it is, that we have a contentious environment.  Or we have a problem that we think needs some attention, or some legal guidance that arises out of an estate.  We cannot forget the hard and fast rules of how quickly you have to move. So, if you’re one of these people that are sitting there and you’re kind of p----d off or you’re kind of angry about a family situation.  Mom or Dad died.  Or your grandmother died.  This decision was, and again we won’t get into all of the facts, but it was a good reminder that we can’t lie, sit back and wait around in respect of our interests. And we can’t wait too long, because if you have that occurring, you could actually lose your rights.  So you may want to be angry, you may want to get yourselves talking to a lawyer quickly and so you don’t miss limitation periods and that.

Suzana Popovic-Montag: And on the flipside of that Ian, many times people are going through a grieving process.  And so there might be situations where not just that they’re angry.  They’re looking to, you know, explore their rights.  But people who are also just in these situations who need to seek legal advice notwithstanding the fact that it’s still too fresh, and it’s still too new.

Ian Hull: Okay.  Another case that came out in the last year is a case call McMullen.  And it was an interesting case because it brought to life, which we’re trying to talk about cases that bring to life the things we’re talking about, so that we’re not just talking about esoteric points. It brought to life the limits of a Power of Attorney.  And in this case, it was this 86 year old widower who had commenced an application against two of his three daughters who held his Power of Attorney. And the application was to set aside the transfer of an interest in the father’s condominium property of his two daughters. And what basically happened was the ownership of the property got pulled out from under his wing, so to speak.  And it turned into an all out war, where the daughters were…one daughter was accusing the other two daughters of manipulating.  They were accusing the father of not having capacity, and they were fighting over money. A case that again illustrates the fact that these are tangible examples of the fact that families get torn apart.  And worst of all, you bring out the dirty laundry. You’re bringing out issues of what was essentially hatred between siblings plus issues of whether or not the father had capacity at the time.  So you were making this gentleman, you know, be tested in that sense as to capacity.  And he was being questioned as to his ability to make decisions, questioned his abilities to make, you know, bring law suits and so forth. So you can see that in this situation, it brings out the worst of everyone.  And in large part, could may have been avoided.  Who knows in this one?  May have been avoided if somebody had sat down before with the three daughters.  The father sat down and said look, this is my Power of Attorney, this is what I’ve decided to do, and this is how I’ve decided I’d like it to be, you know, managed, so to speak. And who knows in this case if it would have helped.  But this case is another illustration, a real life illustration, of how bad goes to worse.

Suzana Popovic-Montag: I think Ian, it’s also a good illustration of the fact that these documents, these Powers of Attorney that so many people make, are very important documents. And they have the potential, as we always say, to be abused and misabused by people. So when you’re setting up these arrangements, you have to keep in mind the fact that you’re choosing someone that you’re relying on implicitly to do what you would want them to do.

Ian Hull: Absolutely.  Well, I think that gives us a few illustrations.  And maybe for our next podcast, we’ll come up with a couple of more just to sort of put some meat on the bones of, you know, to illustrate that these things really do happen and they really do produce cases and produce real life situations.

Suzana Popovic-Montag: That’s great Ian.  I look forward to our next podcast.  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.