This week on Hull on Estates, Natalia Angelini and Sean Graham discuss issues that surround estate assets.  The value of some assets are not always determined by their financial value and the value of other assets may change dramatically over time.

Estate Assets - Hull on Estates Podcast #90

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

Natalia Angelini:  Welcome to Hull on Estates.  You’re listening to Sean Graham and Natalia Angelini on Tuesday, December 18^th, 2007 and you’re listening to podcast Episode #90.

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.

Sean Graham:  Hi Natalia, how are you?

Natalia Angelini:  I’m great, Sean.  How are you?

Sean Graham:  Oh, pretty good thanks.

Natalia Angelini:  That’s good.  I thought we would talk today about assets in the estate planning context.  And so one of the questions that come to my mind is, what kind of considerations does a testator have to take into account when dealing with their assets?

Sean Graham:  Well, and it’s kind of a fundamental question which sounds, at first blush, fairly simple.  What do you own?  But I think there’s a bunch of background issues that go into it.  And once we start to talk about some of these issues, at least I was thinking about them when I was doing my blogs this week, it came to my attention that really it can mushroom into a whole bunch of different considerations.  And as we both know, one of the indicia of testamentary capacity is that the testator must know the extent of his or her assets.  So that’s sort of the first step.  You need to know it to do a valid Will, but also knowing the nature and extent of your assets is not always as simple as it may seem, at least in the estate planning context.

Natalia Angelini:  So what different assets are there that testators should know about?

Sean Graham:  Well, and to some extent, that’s going to depend on what the testator holds dear.  Economic value is not necessarily the only measure of value that goes into a Will.  There may be a painting or a family memoir of some kind that really has no economic value but in some cases, may be the most important asset.  So assets, I think, needs to be considered not only in an economic framework, but also in a sentimental framework.

Natalia Angelini:  That’s a good point.  I think in last week’s podcast, David and Allan were talking about probate.  And, of course, one of the things you need to do is value your assets when you’re seeking probate.

Sean Graham:  Yeah, and some of those sentimental assets that I just talked about, aren’t going to show up on that application.  But again, in some cases, with some testators, that can actually be more important than the economically valuable assets.  So that’s something I like to look for in any given situation.

Now moving on to the economic assets which, in the litigation framework, tends to dominate, although certainly there can be disputes over sentimental things.  Again, this is a possible…this topic really can mushroom.  It’s easy to say sort of off the top of your head what you think is in your bank account and so forth.  But let’s just maybe break it down.  Because each asset, depending on its characteristics and its form of ownership, can really lead to tax issues, litigation issues in terms of who owns something.  It may have an economic and a sentimental value to the testator and also to potential beneficiaries.  So there may be a reason to give an asset to one of the beneficiaries instead of the others.  And really, that’s just the start of it.  So…

Natalia Angelini:  Now the obvious largest asset that most people have is their house.  But there’s a whole bunch of others that might not come to mind unless you give some further thought to it.  Why don’t you let us know what some of those are, Sean?

Sean Graham:  Well, sure, and the house leads me into sort of real estate, of course.  Not just residences, but people can have multiple residences.  It’s often the case that someone may have bought a residence decades ago.  The price of real estate may have been a relative fraction of what it is today and the testator may have a general idea that real estate values have gone up in the last 50 years.  But they may not know that that house they bought, you know, for, I don’t know, $5,000 in the Forest Hill area and the 5 acres of land on which it sits, are now worth a good deal more than $5,000.  So that’s a situation, obviously that’s an extreme example.  But, you know, there can be very large disparities in values in terms of what a testator who never really wanted to sell the house, never really bothered to check on the market and all of a sudden is talking about giving this house in a Will plan.  It would be helpful certainly to know what the value of that property is.  And, of course, that leads into the issue of well, what happens after the Will is drafted and the value keeps changing?  And that’s why a lot of planners, I think, sort of advise someone to go back to their plan and look at it every few years, because the value of assets change.

Natalia Angelini:  That’s right.  I think it’s something always to keep in mind and when you’ve got assets that are local to where you’re residing, it might be more straightforward.  But a lot of people have real estate outside of the country as well.

Sean Graham:  And cottages.  I mean, depending on the area, the value of cottages, I understand anyway, can really have changed a great deal.  You know, up in Muskoka, my layperson’s understanding from what I read is that some of the land values have really gone up.  And they might go back down, who knows?  And again, then you’ve got the foreign assets.  Condominium prices for vacation properties in the areas hit by the hurricanes down south a few years ago, you know, who knows what happened to those?  But a testator, you know, it’s a good idea, I think anyway, for a testator to certainly find out.  And it doesn’t hurt to check every once in a while, just to keep yourself updated, whether you’re planning a Will or not, I suppose, just general financial planning.

Natalia Angelini:  That’s right.  And once you’re actually administering an estate, that’s going to be relevant at that point again.

Sean Graham:  Yeah, and again, the values can change between the time of the Will and the administration of the estate.  I mean, you’re stuck with the Will I suppose.  But you may find that the intentions of the testator sort of may get skewed a bit by changes in values.

The other thing I find interesting is those sort of up-in-the-attic personal property, or hanging on the wall, if it’s a painting say, where the family has a basic idea, a family or testator is pretty sure that the painting is valuable.  Say it was done by an artist who rose to prominence after the painting was purchased.  And so the family has a pretty good idea that the painting is worth something but really it’s never been appraised, they’ve never tried to sell it. Those assets can be, it seems to me, very helpful to value, really get a sense of what it’s actually worth.  There could be tax consequences of any assets, and particularly, you know, a valuable painting which was bought for nothing.  And similar to corporate shares, which are bought for nothing and then they skyrocket, but not identical.  You know, there’s different considerations I suspect.  And knowing the value, it seems to me, is the first very important step.

Natalia Angelini:  It’s particularly important when you’ve got litigation that’s brewing, because you’re going to want to keep, if you’re the estate trustee, you’re going to want to keep all the beneficiaries and purported beneficiaries aware of what the status of the administration is.  And one of the first things they’re going to want to know is, what all the assets are and what their value is, so they know what they’re fighting over essentially.

Sean Graham:  For sure.  And if…let’s just take a hypothetical situation, I’ll pull some names out of mid air.  There’s 3 children:  John, Jenny and Stewart.  There’s a testator who wants to divide up the assets and the testator thinks that John really likes the house and wants the house and Jenny, I think I said, wants the painting, and Stewart gets the rest.  And this is similar to the hypothetical situation I mentioned in my blog.  Again, if you don’t know the values of these different assets, you could be giving John the $2,000,000 house, Jenny the $50,000 painting and Stewart the residue, which is worth $100,000.  But who knows?  Maybe someone is suing the testator so, you know, one of these assets gets eaten up completely.  Without knowing the value and knowing, not just the value, the market value, but also whether there’s claims against an asset, whether it has depreciated or been damaged somehow.  All those things are helpful, in my view, in coming up with a plan.

Natalia Angelini:  And the sooner you know this, the better, because if you’re trying to resolve litigation, you’re not going to be able to do it in a meaningful way without knowing what your net dollar value is.

Sean Graham:  For sure.  So then you have, of course, the investment assets. And we’re not talking about every kind of asset in this podcast that someone could have.  But investments, portfolios, mutual funds, that sort of thing.  Again, a lot of people I think tend to know the value of these assets because they get statements.  But you don’t get regular statements about your car and you don’t get regular statements about a painting or a house, and so on.  So in many cases at least, I think the investment side of things may be a little easier to figure out.  But you still have background information that’s helpful.  You mainly want to get some tax advice in terms of whether these investments have grown or whether they’re invested in the best, you know, tax manner.  And that can all go into the planning stage as well.

Natalia Angelini:  And I think it depends on how sophisticated the testator is and how complex their estate assets are.  But it’s certainly something that, in that kind of scenario, is a good idea, or it’s something I would do in any event.

Sean Graham:  And the last thing I’d just sort of want to maybe close on is that you want to come up with a total, I suppose, or some sense of a total value of all these assets once you take into account claims and tax consequences and so forth.  And the total value may affect the amount of beneficiaries.  If an estate is worth $50,000, you may not want…a testator may not want to get too generous to too many people because once all the administration is done, of course, you know, the initial amount may not lend itself to having too much left to give to too many people.  If you’re looking at a $10,000,000 estate and the testator just, for example, might want to take care of the kids “first” and then decide about what other beneficiaries there may be, then who knows.  There may be specific bequests to charities, you know, that would not necessarily be desirable in a smaller estate.

Natalia Angelini:  Good point, Sean.

Sean Graham:  Well I think…I hope that’s sort of helpful.  Again, we’re just sort of sketching out issues here and the one thing when I think about this topic is a relatively simple question: what do you own? - can lead to an extremely complicated set of follow-up questions and inquiries and so on.  And you may need to go to other people other than the testator, a tax expert, there could be foreign assets, you need to get an opinion from a foreign expert, just to come to that initial question of value.  So I hope that’s helpful to people.

Thanks very much, Natalia.

Natalia Angelini:  Thanks, Sean.

Sean Graham:  So that’s the end of our podcast, and hopefully it’s been some help to people and thanks very much to everyone for listening.

Natalia Angelini:  Thanks for listening.  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.

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In the Barna Estate case, the deceased died owning real property in Europe and substantial personal assets in Canada. The deceased had lived and died in France. She left two Wills. One was a French Will, dealing with her real property in Europe. The second was a Canadian Will, dealing with her cash, bonds and other financial assets in Canada. None of the beneficiaries under either Will were related to the deceased.

Under the applicable French law at the time, beneficiaries not related to the deceased could be liable to pay a 60% tax on the value of the deceased’s worldwide estate.

Canada Trust, the executor named in the Canadian Will, brought an application for the court’s advice as to whether it should pay all debt and succession duties in respect of property passing under both Wills, or whether it should only pay Canadian succession and death duties in respect of property passing under the Canadian Will.

There is a presumption that a testator’s intention is for the law of the jurisdiction in which she resided at the date of execution of a Will shall apply. In this case, the deceased was living in France at the date of execution of the Canadian Will, and according to the presumption, the Will should be interpreted in accordance with French law. However, the presumption is a rebuttable one, and the court ultimately found that the deceased had intended that her Canadian Will be governed by the law of British Columbia.

Once the court decided that the Canadian Will was governed by the law of British Columbia, the court had to interpret the payment of taxes clause in the Canadian Will. Given, among other things, that the deceased’s European property was specifically excluded from the Canadian Will, the court ruled that Canada Trust, as trustee, was only required to pay the death and succession duties in respect of property passing under the Canadian Will.

Have a great day!

Bianca La Neve