Toronto Estate Law Blog : Toronto Estate Lawyer : Hull & Hull Law Firm : Trust Mediation and Succession Planning : Serving Ontario, Ottawa, Mississauga, Hamilton

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I recently had the opportunity to meet with a gentleman named Franco Lombardo from Vancounver B.C. who has pioneered the concept of "authentic wealth" in the context of succession planning.  Franco has written two books:  Life After Wealth and Money Motto both of which deal with and elaborate on his core concepts of devising strategies for individuals who want to create a meaningful personal legacy. 

In Lombardo's words: "Authentic Wealth involves seeing, understanding and releasing fears around money, and, at the same time, embracing a deeper understanding of who we are, why we are here, and how we create meaning through the choices we make every day"

Franco has founded Veritage, a company through which he consults with clients with a view towards a more holistic succession planning strategy.   The concept of collaboration between a testator and his or her beneficiaries in realizing family objectives has also been explored by Ian Hull of our office and his concept of the Family Conference as a means of avoiding estate litigation. 

David M. Smith

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The gradual demographic shift to an aging population is causing governments to reevaluate how to ensure that appropriate funding is in place to provide for long-term care.

A recent article on the BBC website references the work of a task force commissioned by the British government to consider the feasibility of three different models for the funding of post retirement long term care.

The three plans are:

Partnership - The state guarantees a base level of care, leaving the individual to fund the difference; 

Insurance - The same as partnership, except that the government would help set up insurance schemes for people to pay into to cover the difference; and 
 

Comprehensive - Payments of up to £20,000 to be paid by an individual after retirement.  In exchange, all social care, except accommodation costs, would be paid for by the government.  The payment by the individual could be paid in a lump sum, through installments, or garnished from his or her pension.

The authors of the proposals note that many people will be better off under these models as the average cost of social care for a 65-year-old is £30,000 over the rest of their lifetime. Another aspect of the proposals allows deferral of the costs of residential care until death when the outstanding bill would be a charge against the individual's estate.

Of course, the accepted model will depend on the outcome of a vigorous political debate that will have to weigh the sacrifices required to fund the costs of caring for an aging population.

David M. Smith

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The moment of death is obviously the seminal triggering event in the context of estate and trust law.  As but one example, a Will speaks from the moment of death.

A recent article in the National Post raises an interesting question regarding when death actually occurs and how it is defined.  There is a medical difference between "cardiac death" and "brain death."  As the article notes, the issue is of most concern in the context or organ donation. Simply put, the cardiac death protocol provides that declaration of death may be made 5 minutes after cardiac death.  However, in extremely rare instances, case have been reported of a "Lazarus syndrome" and "auto-resuscitation" as long as ten minutes after cardiac death.  In any event, a person may still have brain activity for a period of time after cardiac death.

As Jocelyn Downie, an ethicist at Dalhousie University notes: "It is only after the declaration of death that certain things can happen:  we can take your organs, we can bury you, we can do an autopsy...we can trigger all sorts of things around your property."  Downie advocates a more rigid definition. 

Legislation in most provinces suggests that death is to be determined by physicians according to "current medical practice." PEI's law is more specific (death can "include brain death").  In Quebec, there is no legal definition at all:  the matter is left completely to the physician.

Ontario's Trillium Gift of Life Network endorsed the new donation-after-cardiac-death (DCD) protocol only after extensive research and consultation that ensured it is a moral and medically appropriate practice.

David M. Smith

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Pre-nuptial Agreements, Co-habitation Agreements, Marriage Contracts and Separation Agreements can make for added complexity in any estate dispute.  Considering the disproportionate rate of estate litigation in families were there have been second marriages (or spousal relationships), it is inevitable that such contracts will continue to impact our practice.

In the recent edition of the Trust Quarterly review published by STEP, the authors of a paper note that "Pre-nuptial agreements are currently not legally binding in England and Wales, but can be taken into account as one of the circumstances of the case."  In contrast, the authors note that agreements made after the date of marriage are likely to be binding, subject to the principles of contract law. 

In Ontario, claims advanced under Part V of the Succession Law Reform Act are evaluated based on the existence of a number of factors including, under section 62(1)(m), "any agreement between the deceased and the dependant."  Certainly there appears to be a trend towards more careful drafting of agreements which may involve the parties contracting out of statutory entitlements they may assume on the death of the other.  Given the gravity of contracting out of such significant entitlements, any challenge to such a contract must consider such factors as: (i) the existence of ILA; (ii) the degree of disclosure; and (iii) the presence of any degree of coercion, to name just a few.

Have a great weekend!

David M. Smith 

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On April 7, 2009, I blogged on the decision of Justice Strathy in Richardson (Estate Trustee of) v. Mew.  In that decision, His Honour considered the situation where a deceased’s first spouse was unexpectedly the named beneficiary of a life insurance policy owned by the deceased, the second spouse seeking to remedy what she argued to be an unjust situation. As I noted, His Honour, while not exercising his jurisdiction to rectify the policy, left open the possibility that, in the right set of circumstances (i.e. clear evidence of a mistake), the court could properly employ such a remedy.

The Ontario Court of Appeal released a unanimous decision on May 14, 2009 upholding Justice Strathy's decision.  Of particular significance to the trusts and estates bar, the Court of Appeal clearly stated that, after the mental incapacity of the donor, the attorney under a power of attorney was not permitted to change a beneficiary designation even in circumstances where there was compelling evidence that the donor would have done so if capable:  "As a fiduciary in a role rising to that of trustee, [the second wife] was bound to use the power only for Mr. Richardson's benefit."

In commenting on the case, The Lawyer's Weekly has noted that counsel for the disappointed second wife is seriously contemplating an application to the Supreme Court of Canada for leave to appeal.  In question: is there ever a situation in which the attorney under a Power of Attorney ought to have power to act in the best interests of the donor to effect a testamentary disposition that accords with his or her last known intentions before becoming incapable?

David M. Smith 

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For my final blog of this week, I thought I would give further consideration to the unique legal issues arising out of life insurance beneficiary designations.

Because of the increasing complexity of insurance structures, it is not always easy to determine what "property" is held by a policyholder at the time of his death. The question is relevant when one considers that, in Ontario, Estate Administration Tax is levied on the value of "all property that belonged to the deceased at the time of his or her death." In this context, there is good reason to question when a contract between the deceased and his insurer morphs into a legal obligation owed by the insurer to the beneficiary.

While the contractual obligation between the deceased and his or her insurer has been described by at least one court as a "species of property", that property (if we are talking about term insurance) only realizes its true value after (as opposed to "at the time of") the death of the deceased policy owner. More than one commentator has noted that the value of term life insurance before the death of the deceased is arguably nominal.  However, in Re Carlisle Estate, discussed yesterday, the Court stated: "No one would suggest that the value of a winning lottery ticket is the price paid for the ticket.  The value of an insurance policy is the amount paid to the beneficiary by the terms of the policy."

Have a great long weekend!

David M. Smith

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As a segue from yesterday’s blog (which considered the issue of beneficiary designations of life insurance policies), today’s blog considers issues arising from the characterization of life insurance proceeds as trust assets in the context of an overall estate plan. Life Insurance Trusts can be created for specific purposes where the owner of the policy has clearly defined testamentary intentions respecting the use of the funds.

In his recent presentation at the Six-Minute Estates Lawyer, Robin Goodman noted a recent Saskatchewan case, Re Carlisle Estate, in which the Court considered whether a declaration in a Will creating a life insurance trust had the effect of excluding the proceeds from probate under Saskatchewan legislation. In that case the Court determined that, regardless of a clearly stated intention to the contrary, the appointment of the executor of the estate as the trustee of the insurance trust (and, more importantly, as the designated beneficiary of the insurance proceeds) meant that “no exemption from probate fees can be claimed.” However, in a gloss on this case, the decision in Sun Life Assurance Co. of Canada v. Taylor (also a Saskatchewan case) clarified that, where the insurance proceeds did not vest in the executor as beneficiary (albeit as trustee for others) but, instead, were simply held by the executor in trust for the designated beneficiaries, the insurance proceeds were not to be considered as estate assets.

As Goodman notes in his paper, it is not clear how these decisions will impact the law in Ontario. In any event, the decisions serve to give any estate planner pause to consider how best to structure an insurance trust whether inside or outside of a Will.

David M. Smith

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The impact of Stone v. Stone will clearly have a lasting impact on the practice of family law.  This case stands for the general proposition that a spouse can not deplete their assets with the effect of diminishing their spouse's entitlement under the Family Law Act.  Similarly, the estates bar has recently witnessed a similar effect as a result of the decision in Pecore v. Pecore:  Transfers of assets into joint ownership between persons other than spouses are inevitably now subject to even greater scrutiny than before.

In the context of the estates practitioner, it can be seen that the principles raised in Stone clearly have some bearing on estates litigation.  When a spouse transfers assets into joint ownership with his daughter from a first marriage,  the surviving second spouse will no doubt argue that the presumption of resulting trust applies, having consideration to Pecore.  But Stone may have relevance as well, particularly in circumstances in which the deceased and the second spouse enter into a Marriage Contract which provides for a guaranteed entitlement of the surviving spouse on the death of the other. To what extent is the spouse who promises such entitlement precluded from gifting assets or transferring assets into joint ownership?  A complex overlay of contract,  family, and estates law ensues.  Unless the assets are significant, the costs of litigating such a dispute inevitably militate in favour of settlement.

David M. Smith

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Powers of Appointment may appear in a Will when a testator wishes to entrust the donee with authority to direct who will be the recipients of the testator's property.  A not uncommon scenario is one in which the donee of the power is given a life interest in the testator's estate and a Power of Appointment to determine which of the donee's issue shall be the recipients of the residue of the testator's estate on the death of the donee.

To exercise such Power of Appointment, the donee has to, first of all, survive the testator and, secondly, make a Will which successfully exercises the Power of Appointment. If the donee dies before the testator whose Will grants the Power of Appointment, the power clearly lapses and the Will will presumably provide a gift over to address such eventuality.

Such a decision to effectively delegate testamentary authority is not without its perils and counsel should probably carefully review with the testator the ramifications of granting a Power of Appointment respecting the distribution of residue.  For instance, if the testator has a good relationship with her grandchildren (i.e. the donee's children) the testator ought not to presume how the donee will in fact exercise the Power of Appointment.  In addition, the donee's Will may be vulnerable to a challenge which could conceivably defeat the testator's intention in granting the Power of Appointment

David M. Smith

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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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