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Listen to Fiduciary Accounting

This week on Hull on Estates, Ian Hull and Suzana Popovic-Montag discuss fiduciary accounting. Who is a fiduciary and what is a fiduciary's duty to account? They cite several cases that illustrate  fiduciary accounting rules:

• Re Taerk, [1975] O.R. 482 (C.A.).
• Re Silver Estate, (1999) 31 E.T.R. (2nd) 256.
• Roger Estate v. Leung, [2001] O.J. No. 2171.
• Fair v. Campbell Estate, 2002 3 E.T.R. 3rd 67, Langdon J.
• Fareed v. Wood, 2005 WL 1460361 (Ont. S.C.J.).
• McAllister Estate v. Hudgin, 2008 CanLII 42213 (ON S.C.)

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.

Fiduciary Accounting - Hull on Estates Podcast #129

Posted on September 23^rd, 2008 by Hull & Hull LLP

Ian Hull: Hi and welcome to Hull on Estates. You’re listening to Episode #129 of our podcast on Tuesday, September 23^rd, 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.

Suzana Popovic-Montag: Hello there and welcome to Hull on Estates. I’m Suzana Popovic-Montag.

Ian Hull: And I’m Ian Hull.

Suzana Popovic-Montag: And we’re very happy to be back here on Hull on Estates.

Ian Hull: We sure are. We’re reminding our listeners, of course, as always, please give us feedback, and call in at 206-350-6636.

Suzana Popovic-Montag: And, of course, if you prefer, you can send us an e-mail at hull.lawyers@gmail.com, and I do refer you also to our blog which is estatelaw.hullandhull.com.

Ian Hull: So, Suzana, we are having the pleasure of doing a second take on this Hull on Estates because of technical difficulties, so this one will be absolutely perfect.

Suzana Popovic-Montag: Here’s hoping, that’s for sure.

Ian Hull: The joys of recording in the new age of technology.

Suzana Popovic-Montag: Now if only we could do that on our companion podcast, Hull on Estates and Succession Planning with the video component, Ian.

Ian Hull: No retakes. That’s right, don’t forget please to flip over to our other podcast which we do weekly, Suzana and I do it weekly, and it’s Hull on Estate and Succession Planning. We’re doing it with video streaming and YouTube streaming, as well, so you’ve got an audio or video component of that.  So we recommend that you and welcome you to take a look at that. Right now we’re in the depths of a discussion over Will challenges and what it means to the lay person and what’s involved. But today we wanted to talk about a different issue, and that issue is one of fiduciary accounting. One is, how far is the Court going to impose fiduciary accounting on us and who is the us?

Suzana Popovic-Montag: And I think this topic is actually quite a nice extension from the last Hull on Estate podcast that was done by Natalia Angelini and Chris Graham where they talked a little bit about a solicitor’s liability when dealing with Powers of Attorney and they sort of gave us a little bit of a segway into the whole attorney’s duty to account. 

Ian Hull: And really, it comes down to the question of, first of all, who is a fiduciary and we, as lawyers, are lumped into the fiduciary category easily, but there’s a broader group of fiduciaries that the Courts will impose an accounting obligation on, and that’s what we call the allied professionals.

Suzana Popovic-Montag: And when we talk about allied professionals, we’re speaking about individuals like the accountants who work with us with these financial planning situations, like the tax advisors, the insurance individuals and the financial planners who give advice and work with us and our clients in situations where we’re planning estates for our clients.

Ian Hull: So the question we wanted to raise today is the recent case law development, and talk a little bit about the history that has brought expanded, we think, the concept of the duty to account.  And first of all, let’s spend a minute on what the duty to account is. We’re talking about fiduciary accounting and it is an audit by the Court, much like an audit by CRA, the same kind of extensive review of your conduct. Now the CRA is a little different, obviously, but it is akin to it and it’s a formal audit before the Court.

Suzana Popovic-Montag: And that might be a little bit different than what people would normally be used to providing to their clients when they’re dealing with different industries other than necessarily ours. 

Ian Hull: So, let’s take the example of a dutiful family solicitor. She has looked after the Jones family for 20 years. Now the Jones family has transitioned over those years and the husband has passed away at the ripe old age of 92, and the surviving spouse at 88 is sort of left holding the bag financially. That surviving spouse then turns to her solicitor, her long-time solicitor, one whom she’s trusted for many years, and says to her, will you look after things; I don’t want to worry about paying hydro bills, I don’t want to worry about paying when my kids need money, I want you to deal with it, I want you essentially to be the one who looks after my money, because from an administrative standpoint, it’s too much of a headache. Not that I, I’m capable of doing it mentally, but I’m just administratively, I never did it before, my husband always did it and I’d just like you to look after it. That lawyer, whether he or she is acting under a fiduciary environment, may well be required to pass their accounts in a formal Court audit.

Now let’s take a few minutes and talk about why I have come to that conclusion. The first thing is this, there are sort of three components. One is the recent, relatively recent, but the developments that have arisen out of the statute law; the second is a discussion of the case law developments that I’m talking about; and the third is the reality of the social and legal trends that our society faces when they’re talking about imposing obligations on lawyers and fiduciaries.

Suzana Popovic-Montag: And if we turn to the first one of those, Ian, the statutes, we can start with Section 42 of the Substitute Decisions Act which is here in Ontario and I know the provinces across Canada have similar legislation as do other jurisdictions as well. And what this section specifically provides for is the fact that a Court may order, either an attorney and/or a Power of Attorney or a guardian, to pass their accounts, to prepare accounts either for the entire tenure or for a certain portion of the tenure time during which that individual was acting as a fiduciary. And the language in the statute is very discretionary and broad in that it can provide for the requirement that these accounts be prepared and timing and other limitations can be imposed on a fiduciary for that as well. 

Ian Hull: Okay. There are two other statutory considerations; that’s Section 49(3) of the Estates Act and the Rules of Civil Procedure, both of which tie into our general theme that the Courts have an expansive role, from a statutory standpoint, to impose a duty to account on almost just about everyone before you go into this. 

Now let’s just talk about, go through the case law review. We start with the case of Re Taerk. All of the cases we’re going to refer to will be in the show notes with the sites. But the Re Taerk decision, is a Court of Appeal decision in Ontario of 1975. And that decision starts us off on the basic proposition that as we understood the law and relatively recently understood the law, that a duty to account in a fiduciary accounting environment only arises as a result or consequence of that particular fiduciary, the recipient of this Power of Attorney actually signing a cheque or actually doing active duty, so to speak.

Suzana Popovic-Montag: And then one of the next cases that we sort of tend to turn to is the Re Silver decision which said, you know, yes you do have this duty to account, and the fact that probate hasn’t necessarily been obtained, doesn’t preclude you from being required to do so.

Ian Hull: The next case, the Leung Estate, is really a reiteration of the basic principles of fiduciary accounting and worth mentioning today, just so that we continue to emphasize the importance of what the different kind of accounting that’s going to be required of a fiduciary. 

Suzana Popovic-Montag: And just in terms of a quick recap, the requirements are, of course, that the attorney has to be prepared to prepare the accounts, they have to be kept distinct from their own individual accounts and separate accounts, they’ve got to maintain vouchers, prepare their accounts in actual Court format and disclose all transactions that have happened and particularly, transactions that may eventually somehow amount to perhaps a breach of trust as well.

Ian Hull: So the next case is the Fair and Campbell. And we’re doing this in a chronological order to come to the crescendo of the last two cases that I think really, Suzana and I are of the view that have really expanded this duty to account. Fair and Campbell essentially said that you’ve got to write the cheque before you have the duty to account. You have to actually be an attorney, do something. 

Now, the Fareed decision, it is a decision of the Ontario Court and it talks about the obligation, in this case a solicitor, who acted much like my earlier example, as the family solicitor, touched the financial affairs of the particular individual at a fairly high and intense level, i.e., paying the bills and things like that.  And the Court talks about the obligation on that solicitor that he had a duty to account for all transactions, once he assumes the duties. And this was all transactions, this wasn’t, it was a big departure from the test that you have to cut the cheque to be expected to have to account.

Suzana Popovic-Montag: And then that leads us, of course, to the McAllister decision, which is a recent decision from August of this year, where the Court said that a grantee did not have to keep accounts in this situation because the mom was, in fact, capable. 

Ian Hull: But what the Court said, and again, the Court seems to be flip-flopping on whether you have to sign the cheque or not sign the cheque.  But what the Court said was they will be expansive. In Fareed it was a different fact situation than in McAllister obviously. McAllister was between daughter and mother. But the Court said this, they will expand the obligation to account to a fiduciary, i.e., lawyers, allied professionals, financial advisors, under a two-prong test.

Suzana Popovic-Montag: And the first prong there being that the Court is going to look at the extent of the attorney’s involvement in dealing with the grantor’s money and their finances.

Ian Hull: So that comes back to how active are you paying the hydro bills, are you really involved with the finances, whether you are an attorney, per se or not, but are you actively involved?

Suzana Popovic-Montag: And the second is, has the applicant raised sufficient concern to the Court so that the grantor’s affairs would warrant an accounting? 

Ian Hull: So I call this the “smell test”. Does the conduct of, in that case the mother and daughter, pass the smell test? Is the Court going to look at this situation and say, you know what, this is a little fishy. I do want to have the chance to look at the books at a level that you may be surprised that I’m allowed to ask in that you thought you were acting on the old Re Taerk basis that, hey, if I don’t sign the cheque I don’t have to account.  Well the Court is saying you impose this and they will expand it, looking at this two-prong test.

Suzana Popovic-Montag: And so we do see, Ian, based both on the statute and the case law, the fact that in certain circumstances, the Court will impose these obligations even if we wouldn’t necessarily expect them and that’s by virtue of the broad language and I think, in many cases, the actual facts at issue.

Ian Hull: So we just want to keep our heads up and watch out so we don’t get faced with another possibility of another audit, and almost as painful an audit as a CRA audit would be, and that is an audit in the fiduciary environment.

Suzana Popovic-Montag: Well I think that brings us to the end of this podcast, Ian. I do remind our listeners to feel free to leave us a comment at 206-350-6636. 

Ian Hull: Or e-mail us at hull.lawyers@gmail.com. Thanks for listening.

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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Or, listen to the audio version of Will Challenge Litigation - Part 5

This week on Hull on Estate and Succession Planning, Ian and Suzana continue their discussion on the Will Challenge Process, step by step.

They continue to discuss the process of will challenges in closer detail. What makes a good case? They talk about the five different grounds upon which a will can be challenged:

1. Lack of testamentary capacity
2. Existence of suspicious circumstances
3. Will not having been properly executed
4. Existence of undue influence
5. Possibility of fraud

If you have any comments, send us an email at hullandhull@gmail.com or call us on the comment line at 206-457-1985 or leave a comment on our blog.

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This week on Hull on Estate and Succession Planning, Ian and Suzana continue their discussion on the Will Challenge Process, step by step.

They continue to discuss the value of the discovery process and intense investigation. The goal is to get to the mediation process as soon as possible. New evidence may lead to the next stage: the pre-trial. Ian and Suzana talk about the pre-trial process and what you can expect during this stage.

If you have any comments, send us an email at hullandhull@gmail.com or call us on the comment line at 206-457-1985 or leave a comment on our blog.

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Talking about Wealth and Personal Finance - Hull on Estates Podcast #110

Posted on May 13^th, 2008 by Hull & Hull LLP

Suzana Popovic-Montag: Hi and welcome to Hull on Estates. You’re listening to Episode #110 of our podcast on Tuesday, May 13^th, 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.

Suzana Popovic-Montag:        Hello and welcome to Hull on Estates. It’s Suzana Popovic-Montag here with Ian Hull. Hi, Ian.

Ian Hull: Hi, Suzana, how are you doing?

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

Ian Hull: Great, happy to be on Hull on Estates this week and want to just remind everyone that we have a, encourage of course, a call-in number, at 206-350-6636.

Suzana Popovic-Montag: And that number you’ll find also in our show notes as well as our e-mail address which is hull.lawyers@gmail.com if you’d like to send us your comments by e-mail.

Ian Hull: Well, Suzana, we’ve got a couple of things we want to cover this week on Hull on Estates and our companion podcast dealing with estate administration issues right now. We’ve been talking about how an estate should be administered and giving some thoughts and sort of a mini-series on that. And I thought it might be fun today to talk about a couple of things relating to the dialogue that we think we should encourage and we certainly encourage with our clients, both before death and after death, before death with their family and then after death with the beneficiaries. But before we get to that, why don’t we spend a minute or two here talking about the

wonderful news about our good friend, Terry Fallis.

Suzana Popovic-Montag: Terry has self-published a novel and that’s a really impressive accomplishment on his behalf which has now won him the Leacock Award.

Ian Hull: Now for those of you who don’t know anything about the Stephen Leacock Award, it’s called the Stephen Leacock Medal for Humour and Stephen Leacock, who, actually in his day, he was described as someone more famous than Wayne Gretzky is today to Canadians. He was known throughout the world. In the early 1900s when you spoke of Stephen Leacock, many people around the world would have heard of him before they would have heard of a prime minister in Canada. But, obviously a great novel writer and a humourist, and every year there is an award that is handed out in his honour. Terry Fallis was short-listed and then ultimately won the Leacock Award for his book, “The Best Laid Plans”.

Suzana Popovic-Montag: And Terry’s book is actually a story about a reluctant political candidate who consents to run in a federal election on the condition, of course, that he won’t campaign, give any kind of media interviews or canvass door-to-door.  And it’s an amazingly well-written book that really does deserve, in my humble view, this wonderful award.

Ian Hull: And one of the neat things about this is, one of the many neat things is obviously Terry’s a terrific writer and a great humourist.  But what he did was, the classic publisher route he did not follow. He went the social media route and Terry’s obviously on the cutting edge of social media work, generally, and a real mentor to us in the podcasting world here for us. But he self-published his book.  He also has his book on the Internet for free in audio form.  So he has all of the chapters which he read and published on the Internet.  And the remarkable thing, obviously, of winning the Leacock Award is tremendous, but to be coming out of a self-published environment is unheard of, and really a testament to what Terry has been able to do in the social media world. I know the president of Thornley Fallis, Joe Thornley, is another incredible social media expert and I understand that he is going to be speaking out in Calgary where Suzana is also a speaker in the fall, at what looks to be one of the leading social media conferences for professionals and for others who are interested in getting into the social media workforce with a business slant. But Terry turned the business model to perfection because he talked about his book, he blogged about his book, he self-published his book, he published the book in audio, he did all of the sort of core steps that the social media environment allows for. So, tremendous success for him and an exciting time for him, no doubt and him and his family.

Suzana Popovic-Montag: Congratulations, Terry. We’re very, very happy for you.

Ian Hull: Alright, so what we thought we might talk about today was something that we’re going to get actually put on to our webpage.  And it came out of The New York Times.  It was a special section on wealth and personal finance. It came out on Tuesday, March 18, and I was alerted to it before it came out and picked up a copy of The New York Times because it looked like it was going to be a fascinating special section.

Suzana Popovic-Montag: And it really is, Ian. Flipping through it, it really is a great synopsis of our whole area and it captures all the main headings in terms of the estates and trust planning, the inter-generational transfer of wealth, and finance management, and I just highly recommend it to anyone who is able to pick up a copy or to refer to it on our website.

Ian Hull: And we’ve been talking a lot in our other podcasts, but also in this one, that, you know, from our perspective anyway, communication is crucial and this pull-out section from The New York Times really is a great summary. As I say, we’ll get it up on our webpage in the next little while. It’s a great summary of the different approaches that are going on. We’ve also always said and it appears to be as true as we’ve said it, is that the U.S. are so far ahead of us on talking about wealth management, wealth and inheritance talking in that sense, and really talking about the values of money. The first article in the section is entitled, “Breaking the Silence”. And talking, really, from a standpoint of motivating the family.

Suzana Popovic-Montag: And what I thought was amazing is the statistic that is actually set out there that says that there is going to be the largest inter-generational transfer of wealth in American history now underway.  And the Boston College Centre on Wealth and Philanthropy has actually estimated, Ian, that $41 trillion is going to change hands by the year 2052.

Ian Hull: So, you know, given these numbers in the U.S., we continue to obviously pale in comparison in terms of the Canadian experience.  But, you know, we continue to encourage our clients to talk about, you know, getting into, entering into discussions because these discussions need to take place against the backdrop of changing estate and tax laws, innovative tax instruments that are now available and, you know, using what is out there, and that’s the sort of an army of newly trained and well trained wealth advisors.

Suzana Popovic-Montag: We also have to recognize the fact that the reality is that there is a lot of upheaval and family discord that’s out there, and this complicates the planning mechanisms that are actually implemented by these advisors.  And so the reality is there is going to be divorce, there is remarriage, there is adoption, there are different kinds of domestic partnerships that have become sort of the norm, and all of this is taken into effect and into consideration in the planning mechanisms.

Ian Hull: And you look at it, and in one of the articles in the pull-out section there’s a…Patricia Angus is quoted and she’s a principal of a wealthy advisory service in New York and this is a classic definition. She defines wealth as the following: The definition, she says, is broadening to include not just financial capital but human, social and intellectual capital.

Suzana Popovic-Montag: And then she says that the professionals used to think that it was just, how do I go about transferring my financial assets at the lowest tax cost? Now actually people are asking, well what’s the purpose and the meaning of what it is that I’m doing here and how do I want to pass this down to the next generation or further generations?

Ian Hull: And she makes a great point that it really…it’s not about death, it’s about an experience in life and an opportunity to talk to your family about purpose and values that might not otherwise come up.

Suzana Popovic-Montag: And for people who just write a document and put it in a drawer to be opened up then on their death, it doesn’t foresee or doesn’t take into account the opportunity that you can have that would arise by speaking during your lifetime about your plans.

Ian Hull: So as we work through this section, you know, obviously we’re struck by a couple of the other articles. There’s a great article talking about, it’s entitled, “Protecting Children From Their Money” and the sort of parental distress that comes with situations where parents have accumulated a fair amount of wealth and have indeed begun to pass it down. But there’s a wonderful article as well that sort of works through this whole breaking of the silence of inheritance, and the author goes through specifically and talks to wealthy individuals. There’s one point in the article, a Mr. Rothenberg who had received $10 million in the sale of his company, the company I think was called Syracuse Language Systems that they refer to. And he then set up a charitable foundation and a community foundation for his three children to run, and that was set up with just under $5 million.

Suzana Popovic-Montag: And then with some of the remainder of his funds he started a company that he actually called the Glottal Enterprises which makes speech aids for people who are hearing impaired.  Again, it’s a small company that loses money, he called it, at the time.

Ian Hull: But he wanted to do something different and he even notes in the article, he’s quoted, he jokes about the fact that he’s sure his children wanted more of the money themselves, but he has created two separate foundations. He’s created an important legacy from his perspective. 

So, anyway, as I say, we’re going to put this on the webpage so that you can have an opportunity to enjoy some of this, but feel free, obviously, The New York Times online, and as I say, it’s on the March 18, 2008 pull-out section called “Wealth and Personal Finance”. But I highly encourage it and good reading, (a) because I think the topic is really well worked through by the various writers, but (b) it’s always good to see what the U.S. experience is and in particular, how the U.S. experience is being, they even deal with this, impacted on a more fragile U.S. economy and how that’s affecting this inherited wealth scenario.

Suzana Popovic-Montag:  Well I think, Ian that brings us to the end of this week’s discussion. Thanks for listening to me and for joining me today.

Ian Hull: So thank you Suzana, it’s a real pleasure and I look forward to podcasting with you again soon, and remind people that our call-in number, 206-350-6636, is always available for phone calls.

Suzana Popovic-Montag: Or again, feel free to send us an e-mail at hull.lawyers@gmail.com or visit our daily blog at estatelaw.hullandhull.com. Thanks very much.

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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Listen to The Surviving Spouse

This week on Hull on Estate and Succession Planning, Ian talks about an interview he did this week for a new website called Law is Cool and why he podcasts.

Ian and Suzana discuss the importance of preparing for the death of a spouse or for the welfare of your spouse upon your death. This preparation includes having a good idea of the assets you share and the importance of appointing a guardian for your children.

Comments? Send us an email at hullandhull@gmail.com, call us on the comment line at 206-457-1985, or leave us a comment on the Hull on Estate and Succession Planning blog.

The Surviving Spouse - Hull on Estate and Succession Planning Podcast #96

Posted on January 22^nd, 2008 by Hull & Hull LLP

Suzana Popovic-Montag:  Hi, and welcome to Hull on Estate and Succession Planning.  You’re listening to Episode #96 of our podcast on Tuesday, January 22^nd, 2008.

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 great, thanks.

Suzana Popovic-Montag: That’s good.

Ian Hull: We’re moving along into ’08.  I was listening to our last week’s podcast last night actually while I was walking my favorite animal in the world, Lola, our new dog. And I noticed that your voice isn’t as loud as mine in some of these, so you have to speak up. I should have told you this off-air, but I was just thinking of it now.

Suzana Popovic-Montag: Nothing like improvising, Ian. Thanks very much.

Ian Hull: So get closer to the microphone. Okay.  So, you know, it’s been a fun week this week. I just got interviewed actually and it won’t be launched, I’m told, it’s a podcast and website called lawiscool.com. And I just got interviewed by these guys about an hour ago and it won’t be up into the podcasting world for some months, they tell me, because they are all volunteers and trying to pass their courses at the same time. But it was interesting because the first question that came to mind as we were off-air and talking about it was, you know, why the heck are we doing this, and what are we doing podcasting as a firm. And I told them a story the other day, it happened to me, was I was on a file and we were in a meeting with my client and across the room was the other client with their lawyer. And the client on the other side looks across the table and says, “I’ve listened to your podcasts, you know that, Ian?” I had a good laugh because I thought, that really is what we’ve been trying to do and that is, educate ourselves, educate others and have some fun along the way.  And we certainly are not discriminating in terms of who we want to educate, whether it’s on the side of good or evil.

Suzana Popovic-Montag: Great story, Ian.

Ian Hull: Not that they’re on the side of evil, but the right or wrong. So anyway, listening to last night again, we really, I think, touched on a topic that was near and dear to many people’s hearts and that is, how you deal with funeral arrangements and things like that, some of this pre-probate issues. So I thought another one that can be particularly volatile and one that is worth talking about, what to consider, and that is, and we’ve touched on this briefly, but let’s really drill down on it, and that is, what about the surviving spouse? Now the scenario is whether you’re a surviving spouse or you’re the executor and you’re going to have to deal with the surviving spouse, what sort of pre-probate unique characteristics does that bring into the element? Obviously the first thing that comes to mind is the emotions. You’re a surviving spouse; you have lost your partner. It is, you know, difficult to organize a funeral at the best of times.  Well, it’s also difficult to react to that horrible loss. So we thought we might talk a little bit about some of the things that, as a surviving spouse, you’ll want to keep your eye on the ball on before you get into the fancy seal stage in life in terms of the administration of the Will.

Suzana Popovic-Montag: And I think part and parcel of that is for you, as a surviving spouse, in that kind of situation, is you want to be able to, sort of, step back, notwithstanding the very emotionally charged atmosphere that you find yourself in and determine what kind of financial requirements you’re going to require going forward, see what it is that the will actually provides for you, and have the opportunity to speak with a lawyer to see what your options are in the circumstances.

Ian Hull: So one of the things that we tell a lot of our clients, and most of them don’t listen to us on, but this really comes back home to roost, is keep some meaningful summary, list, control, leads on your financial assets, so that your surviving spouse can determine really what he or she is going to need. You know, within a very short period of time, your surviving spouse is going to need to know what they’re going to be able to live on, what’s left, whether they’ve got to work more, work less, how they’re going to deal with it.  And if you haven’t organized a financial advisor or you don’t know where the life insurance policies are kept, or all of that sort of simple stuff, it’s going to make it that much harder for your surviving spouse in a non-contentious situation to get up on his or her feet.

One of the classic questions that a surviving spouse has to ask is whether or not they got enough under the Will. And that comes back to my earlier comment and that is, make sure that you make it as easy as possible for your surviving spouse to find where the assets are and determine what assets are there. But at the same time, you also want to acknowledge the fact that once you figure out that there is $100.00 there or there is $200,000,000.00 there, your surviving spouse has some core legal rights that they’re going to want to consider quickly.  And you can’t fix that. That’s just the way it works. It’s a community of property division, essentially an equal division on death, if you haven’t provided properly under the Will.  So you’ve got to accept that and so it comes back to the same thing; get the documents organized to make it easier for a surviving spouse to make an educated decision as to whether or not what he or she wants to do after death.

Suzana Popovic-Montag: And what you’re referring to there, Ian, is an equalization under the Family Law Act.  In Ontario, and I think a lot of jurisdictions have similar legislation, that provides for a division of assets on death, in the event that the surviving spouse chooses not to take his or her entitlement under the Will. And one of the key things with these elections and particularly under our Family Law Act is the fact that it is very time sensitive and that a surviving spouse has only 6 months within which time to decide whether or not to take the entitlement under the Will, which means you have to determine what that actually amounts to, or if you’re going to take your election under the Family Law Act.

Ian Hull: So that time sensitivity can get extended by lawyers getting involved and getting judges saying, “Okay, you can have some more time”.  But it’s there for a reason, and that is, is that people have to get on with their lives and they have to deal with the administration relatively quickly. So we don’t want to forget, again, it really does pay to be organized and to make things easy for your spouse.

Suzana Popovic-Montag: And another thing that I often will raise with people is the fact that spouse does not include a common-law or a same sex partner, and so that when it comes to these kinds of particular entitlements under the legislation, you want to make sure that you fit the proper definition of that, so that you can be entitled to it.

Ian Hull: And we, as lawyers, are always careful to make sure that strict deadlines aren’t missed, so we make a note of our 6 month election and I tell my clients to do the same, so that they are mindful of the fact that they’ve got to make some decisions fairly quickly and therefore it keeps the heat on them to track down assets and get organized.

Suzana Popovic-Montag: And another thing that arises in these kinds of situations is that if a spouse actually does elect under our Family Law Act, then he or she can’t act as the estate trustee, even if they’re named as such in the Will.

Ian Hull: One other claim that we’ve talked about before and we won’t go into great detail because we’ve spent a fair amount of time in recent podcasts on, though, is the fact that if there isn’t enough under the Will, you can elect under the Family Law Act as we talked about and we can equalize.  There’s another issue is that even if you got under the Will a certain amount of money and you needed more, you can make a claim as a dependant under most of the common law jurisdictions, where essentially you go to the Court and say, “Yeah, that’s fine, I’ll take my $50,000 a year out of the trust, but that’s not enough, I need a little more”, and the way I can claim that is through the dependant relief provisions of the Succession Law Reform Act.

Suzana Popovic-Montag: And that’s also a time sensitive election, Ian, because that application, if you’re going to bring it, has to be filed within 6 months from the time you do get the certificate of appointment or that probate. So another thing basically for us as lawyers and for clients to diarize and to sort of follow up on.

Ian Hull: So the final sort of surviving spouse issue I would want to talk about is that of the question of custody of child, children, and guardianship of property for the children. And before we get into that, I need to go on my typical rant with clients that I do and that is; just stepping back when you’re drawing a Will, the decision as to who your guardian is going to be can be the roadblock to doing a Will. And there’s nothing more silly than to let that be your roadblock because you need a Will far more important than you need to pick who is going to be your guardian of your children. I know it’s an emotional issue and young parents can never understand this, so they put off doing their Will.  And they just create more problems than it’s worth, because now, when someone’s died and say you’ve died with young children, the way it works is that at law, it really shows you it isn’t that important of a decision to make

Suzana Popovic-Montag: And you say that, I guess Ian, because you’re referring to the fact that when there is an appointment in a Will of someone to have custody of a child, that appointment is going to expire within 90 days from the date of death. And so, at that point, someone else or perhaps even that same person will actually have to bring an application to have permanent custody or guardianship determined.

Ian Hull: That’s right. And so you’ve fretted about this and you find out that it really is only a 90 day appointment and it’s subject to a further Court order.  So you’ve fretted about not doing a Will and you’ve created more of a mess then by not doing a Will because of that. And in Ontario anyway, but most common law jurisdictions, talk about the fact that you need a guardianship of property for the child and that exists where you are trying to pass on assets.  For example, in Ontario, for more than $10,000 to a child, you have to actually get a special guardianship order to administer that money that’s above and beyond $10,000.

So we get into those kinds of issues, and as I say, they can create log jams unnecessarily in almost every respect. So before we sign off, I was struck by a recent story that I saw and in terms of some frailties of the legal system and some of the craziness of it. Some years ago…this is a true story…to help fight crime, the founders and the mayors and the city council in Tacoma, Washington, a place that’s near and dear to me because my sister actually lives right near there, came up with a unique way of thwarting criminals.  And this is a true story in Tacoma, Washington, if you can believe it. They passed an ordinance; the City passed an ordinance which, in part, reads as follows: “It is mandatory for a motorist with criminal intentions to stop at the city limits and telephone the Chief of Police as he is entering town”. Now I made an inquiry with the city hall of the Town of Tacoma, Washington and asked about this ordinance.  And indeed it does exist.  And they admitted on the phone that there is no record of anyone making such a phone call. So you can see how crazy law can be.  And I thought that was a funny story that I ran into.

So we’ll work through this and continue to work through these administration issues in our next podcast. Thanks very much, Suzanna.

Suzana Popovic-Montag: Thanks to you, Ian.

Ian Hull: Bye.

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

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

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

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Listen to Considerations Regarding Testamentary Trusts and Charitable Gifting Issues

This week on Hull on Estates and Succession Planning, Ian and Suzana discuss considerations that must be taken into account while preparing Testamentary Trusts and issues surrounding charitable gifting.

Considerations Regarding Testamentary Trusts and Charitable Gifting Issues - Hull on Estate and Succession Planning Podcast #88

Posted on November 27^th, 2007 by Hull & Hull LLP

Suzana Popovic-Montag:  Hi, and welcome to Hull on Estate and Succession Planning.  You’re listening to Episode #88 of our podcast on Tuesday, November 27^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 fantastic, how about yourself?

Suzana Popovic-Montag:  Just great, thank you.

Ian Hull: It is a bit of a frustrating week.  We were…both of us actually…ended up being too busy to get over to Terry Fallis’ launch of his book.  Terry Fallis is a well-known podcaster, probably Canada’s…one of Canada’s very best podcasters certainly, but most well known.  He does a podcast called Inside PR and he just launched his own book, which he interestingly first launched on a podcast series and then has it published.  And there was a book launch this week that we ended up getting stuck doing a mediation, so we couldn’t get over to it, with some great frustration.  But I just wanted to give Terry a little plug and tell him again we’re sorry we weren’t there but we hear it was a great event.

Suzana Popovic-Montag:  And Terry, if you are listening, congratulations and all the very best with the book sales.

Ian Hull:  Okay.  So turning from…and his book, sorry, is a political-based book, it’s a fiction book, but he talks about life and politics in this book and it’s really a great…I’ve read part of it and I’ve heard part of it, so it’s a great read, I’m looking forward to reading it. 

But we have to transition to a less exciting aspect of life maybe for some, and that is testamentary trusts.  We were promising that we would kind of wind up our discussion on this today and move into some charitable gifting issues that we want to talk about.  So let’s just finish up the testamentary trusts.  We’ve talked a lot about what they are, the special nature that they are as opposed to an inter vivos trust, or a trust during the lifetime.  The testamentary trust is a creation out of the Will.  And because of that, it has some positives and some negatives.  And we’ve talked a little bit about some of the timing issues that we’ve got to be concerned with.

Suzana Popovic-Montag:  We also mentioned, Ian, a couple of the drafting considerations that people want to keep in mind when they’re creating these kinds of trusts in their Will.  And just in terms of tying up, I’d like to suggest that when people are thinking about these situations, that they consider including a power in the trust to reorganize, in effect, a post-mortem estate freeze.  And that’s a little bit unusual in terms of the planning and the timing of planning an estate freeze, but to have that kind of power to a trustee will help in certain situations where the facts sort of suggest that that would be a natural idea.

Ian Hull:  You know, that’s such a good point.  And if you can put the power into the trust, it certainly makes it a lot easier to exercise that creative planning.  And that’s really…I mean the truth is, is that as much planning as we put into estate planning steps before death, while we’re alive, the rules change every day.  And to allow for something like you’re suggesting, a post-mortem or after death estate freeze, might be appropriate in the circumstances.  And if you’ve got the broad language in the trust, you give yourself some flexibility so that when you hand the Will over to the lawyer or an accountant who are going to administer this estate, you’re giving them a little bit more flexibility and more flexibility means possibly chance of taking advantage of laws that have changed since you did your Will.

Suzana Popovic-Montag:  That’s a good point, Ian.  And you may also want to consider including the power to move the trust to different jurisdictions.  Again, for that exact same reason, if the laws were to change and there were to be a benefit to perhaps moving a trust from one location to another.

Ian Hull:  Gee, that’s a good point, because, you know, in the past…and gosh we’ll see much of the change over the future too…but two classic illustrations of where, if you’ve included that power to move the trust, became advantageous.  One was years ago, not that long ago actually, was Alberta and now the Alberta situation isn’t quite as favorable.  But in Alberta, there was a great move to establishing trusts in Alberta, holding companies in Alberta and the like, to take advantage of the slightly less tax rate that was being charged out there.  It was kind of a…it was a unique situation.  Again, we’re not going to try to drill down too deep on the tax issues but there were significant reasons to move a trust or a corporation to Alberta for some time.  And again, we want to, you know, give some flexibility.  And the other classic scenario is, of course, the fact that we’re moving jurisdictions so much, our clients are, that it may become a situation that I ran into the other day where a client came to see us and they had a trust that really, for a bunch of technical reasons, was better suited to be established in the U.S.  Basically what had happened was since the family had created the trust, the children had all moved down to the U.S..  There was no reason, all of the assets were actually publicly traded U.S. companies and for a group of sort of personal reasons, that was the best move.  And sure enough, we looked at the terms of the trust, we had the power and it created another opportunity.  And now we wouldn’t have given the advice, because we’re not the tax planners.  But we were…I was in the room with someone who had the tax planning expertise and they just said look, I think our best move now is to get this trust into the U.S.  Ian, do we have the jurisdiction?

Suzana Popovic-Montag:  And so the key really is to include these kinds of broad, discretionary powers in the trust document so that trustees can respond to changes in either the circumstances or even the law, or, you know, as you say, the tax consequences of something may be better if they can float the jurisdiction of a trust elsewhere.

So, sort of transitioning, Ian, then into the discussion about the charitable tax credits that arise on death.  I think that it’s important that we keep in mind that charitable gifts that are made in a Will are deemed to have been made in the year of death.  And the Income Tax Act here in Canada speaks to that in Section 118.1(5).

Ian Hull:  You know, that’s a great point because, you know, this is where it’s worth getting a little bit technical about the charitable tax credits, in the sense that identifying that there are some really special circumstances that click in on death.  So the other part of that is, is that you have the within the year of death rule, and then you have the fact that excess of deductions may be carried back one year as well.  That’s the same provision - Section 118, just sub (4).  But…and I guess again, we’re not trying to sort of espouse too much on the tax rules but, you know, before and after death, there are some creative charitable tax credits that can be applied here.

Suzana Popovic-Montag:  And so the point really is that charitable gifts that are made in the year of death can be claimed up to 100% of the income in the year of death, and then at the prior year as you just said.  So that really is the benefit of a charitable gift in a Will.

Ian Hull:  And then the other twist is that the complete capital gains tax relief for charitable donations of certain charities.  And there, you know, again, you have to go to the Act and work through this, because they’re prescribed.  But there’s a certain complete capital gains relief that may be available as well.

Suzana Popovic-Montag:  So just to keep in mind, though, that you have to be able to determine the amount of the gift by actually referring to it in the Will at the time of death.

Ian Hull:  Right.  And again, these are sort of technical rules but rules that can be very important in terms of the timing.

Another, you know, again talking about the charitable tax credits on death.  It’s important that the Will not only fix the amount, but it really identifies with some certainty how you’re going to deal with the charitable gifts.  And really, I think the message here is, is that if we can give the executors lots of discretion to choose one or more charities but maybe not an amount, that’s another creative drafting plan.  But what we’re trying to get at here, for the purpose of today’s podcast, is to maybe ask your estate planner and make sure that when they’re going the charitable gifting, that they’re being very careful on the drafting side to ensure that they’re, you’re going to get full advantage of the tax relief, which, you know, on even modest estates, can prove to be a very significant amount.

Suzana Popovic-Montag:  And if a charitable legacy is actually included in the Will, you also may want to keep in mind that you should provide the executor with a discretion to allocate the assets, either in species, so specifically to allocate the specific assets, to satisfy the legacy, including some of those listed securities you referred to earlier, Ian, in order to be able to claim the enhanced charitable tax credit.

Ian Hull:  So Suzana, I know you’ve written on this and done a lot of work in this area, the charitable gifting side.  What happens, though, when you have a charity that’s name is changed or the charity is, it vanishes.  Is there something we can do at the planning stage to help deal with that?

Suzana Popovic-Montag:  That’s a great suggestion, Ian.  There is something that we should try to do and that is to include some kind of language which, you know, we lawyers call “sipra language” or a “sipra clause” that allows an amendment of a charitable gift in the event that, after the person dies or passes away, the charity is no longer in existence or it’s changed its name or its changed its purposes.  And so it’s sort of alike a catch-all clause that allows you to be able to uphold the charitable intent, to uphold the charitable gift, so that you can get all of the advantages out of the gift that you were hoping to, by creating it in the first place.

Ian Hull:  Gee, that’s good to know.  And that’s sort of a nice outlet pass that’s available to us from the drafting side.  And I guess the lesson…the other lesson is that if we don’t press our advisors on these issues, then what we might end up doing is, and we’ve talked about some of these neat charitable tax credits and benefits of gifting on death and prior to death.  If we don’t, the gift may fail and then there will be no deduction and we’ll have not only lost the intention of our hope to charitably gift but we’re not going to get any financial benefit.

Suzana Popovic-Montag:  Absolutely.  And that really is the key.

Ian Hull:  Okay, great.  Well, you know, I think that’s a good wind up of the question of the charitable tax credits.  We didn’t want to get too deep into this today for a couple of reasons.  One is, we don’t pretend to have the tax expertise but secondly, I think that it’s one of those areas that’s got some unique characteristics.  We may be…well we certainly plan in the future, to deal with some more of the charitable giving issues that are important, not just from a tax standpoint but from an estate standpoint.  And we’re going to be talking about that more in future podcasts.  But at least we’ve touched on the tax credit issue and we have a better understanding of what is available.  And then I think what we should do is spend some time on specifics of what are the payment of taxes on death?  What do we do to make sure that we can attend to this and are there ways to sort of predict what we’re going to have to pay on death?  Because death taxes are a huge issue for people and  let’s spend some time in our next podcast really telling ourselves, reminding us where these taxes are going to have to be paid.  So I look forward to doing that and that’ll be a fun podcast.

Suzana Popovic-Montag:  I look forward to it as well, Ian.  Thanks very much.

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

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

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

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Transcription

Closing the Summer’s Cottage and Recreational Property Discussion - Hull on Estate and Succession Planning Podcast #79

Posted on September 25^th, 2007 by Hull & Hull LLP

Suzana Popovic-Montag: Hi, and welcome to Hull on Estate and Succession Planning. You are listening to Episode #79 of our podcast on Tuesday, September 25^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 okay. A little frustrated. I take this as our third take of this podcast, so this will be our best ever.

Suzana Popovic-Montag: And to those of you who don’t know Ian Hull, there is no such thing as a second take, let alone a third.

Ian Hull: Well, we get it right the first time, typically, but the technology is killing me. Anyway, no one wants to hear about our technology problems. We want to talk about cottage and recreational property problems some more. And I think we really are truly at our last of our mini-series, as I described it in one of our takes. It is not the equivalent of “Roots” but it’s still a mini-series, nonetheless.

Suzana Popovic-Montag: And I think quite appropriately timed as well, given that we’ve just celebrated the last weekend of the summer.

Ian Hull: So we’re looking at this cottage property, or recreational property conundrum. And we’ve talked a little bit about what’s in the agreement. So why don’t we spend the last podcast on this topic where we’re really flushing out the details of it, on some other factors to consider in the context of this agreement, whether it’s in the form of a trust or it’s in the form of a contract or a co-ownership agreement.

Suzana Popovic-Montag: Well, Ian, I think if we look at what happens in the circumstances when there’s the death of either a co-owner or a beneficiary, we can see that there are many ways that a trust or a co-ownership agreement can actually deal with these kinds of situations.

Ian Hull: So in the case of a trust, the terms themselves could set out that the beneficiary’s interest in this vacation property falls into his or her estate. Or it could provide that certain other beneficiaries would receive it within a class or of that nature.

Suzana Popovic-Montag: In the case of a co-ownership agreement, each owner might actually be free to dispose of his or her interest in the property by way of his or her Will.

Ian Hull: And that co-ownership agreement could also give the other co-owners the option to purchase the deceased’s owner’s interest from his or her estate.

Suzana Popovic-Montag: Or alternatively, the agreement could actually require the other co-owners to purchase the interest of the deceased owner.

Ian Hull: So again, there are many alternatives. And we just want to pause for a moment before we go into the other considerations that we want to talk about today. And I am reminded of the fact that what we’ve been trying to talk about in dealing with this cottage property issue is options that are available. And the trust agreement brings with it its own unique protections and flexibilities and so does the co-ownership agreement. And I think this last illustration is one where you can see the real delineation between the two choices. Because the death of a co-owner is easier to essentially organize in some ways than it is of a beneficiary in a trust arrangement. 

For example, with a co-ownership agreement, you could identify a mechanism. When the co-owner dies, this will happen. And you could expand that to say that when the co-owner dies, it will be going to some third party, maybe their share has to go to the Humane Society, or something like that. Whereas in a trust, it’s a little more complicated and it’s a little more awkward to direct where the ownership interest will go on death, if you want to go thinking outside of the box.

And the co-ownership agreement, as I say, might in the right circumstances create some better flexibilities. But a trust is also wonderful in its own way because it creates some real certainty. So for example, if there are three children that own the cottage and on the death of one of the children, the trust provides that the child who dies interest passes to his or her own children. So for example, in this case, to the grandkids, that one-third interest passes to the grandkids, it’s essentially entrenched in a trust arrangement which is very difficult to amend or vary in a future step. So it really is, like that example is something that you’ve got Court protections to make sure that that gifting will fall in that way. Whereas with the co-ownership agreement, you’ve really only got contractual protections. And that really, I think, underscores the big difference between what we’re talking about in a co-ownership agreement and in a trust agreement. And that is, is that the scrutiny of the Court is almost, well it’s overwhelming in the context of a trust arrangement. And it is less overwhelming, if I can put it that way, in the context of a co-ownership agreement. So whether you have flexibility or not, at the end of the day, you have to either decide that you want to be subject to the scrutiny of the Courts or not. And that is almost one of the preliminary questions you want to ask yourself and answer before you enter into either option.

Suzana Popovic-Montag: That’s a very important point, Ian. A good illustration of the distinction between the two arrangements that, you know, we’ve been talking about in terms of how to hold a cottage property. And it also, I think, in each situation, you can also deal with what happens in the event that one of the owners or beneficiaries becomes incapacitated.

Ian Hull: So the terms of the trust in the situation of incapacity, the terms of the trust or the co-ownership agreement, should outline what would happen if one of the beneficiaries or, in the case of a co-ownership agreement one of the co-owners, becomes incapacitated either physically or mentally, to the point where they cannot use the property.

Suzana Popovic-Montag: And I think the nature of the incapacity is also very important. Because if it’s a physical incapacity, for instance, and the property is one that would have required a lot of maintenance or a lot of work to be done on it, then that physical incapacity is going to mean something different in that circumstance.

Ian Hull: That’s such a good point because the limitations we usually think about are on the element of the mental capacity. If you lose mental capacity, maybe that would affect your ability to use it. But physical demands of a recreational property can be a unique circumstance to consider. So the physical incapacity is front and centre.

Suzana Popovic-Montag: And in the case of a co-ownership agreement, the other co-owners might be required in that circumstance, if there’s an incapacity of some nature, to purchase the interest of the incapacitated owner at the option of that owner or his or her personal representative, if someone is already acting for that person.

Ian Hull: Another thorny issue is to consider the whole mechanism to deal with the sale of the interest, as you’ve just pointed out, that option is given.

Suzana Popovic-Montag: And I think it’s safe to say that it’s probably easier to include terms that address beneficiaries or co-owners who want to sell their interests in a co-ownership agreement rather than in a trust arrangement.

Ian Hull: So while it’s not necessarily common for trusts to allow beneficiaries to sell their interests in the trust to a third party, in fact it’s uncommon, the terms of a co-ownership agreement alternatively though can easily give that owner that right. And that’s an illustration of what I was talking about earlier in the sense of the extra flexibility that comes from the contractual arrangement that isn’t as closely scrutinized by the Court as the trust arrangement.

Suzana Popovic-Montag: And the agreement could also give the other co-owners a right of first refusal, or even the option to purchase the interests of a co-owner at fair market value, as maybe some other alternatives.

Ian Hull: Okay, let’s talk a little bit about situations where you’re forced to dispose or some bankruptcy or financial problems, those kind of scenarios and how that might be dovetailed into an agreement.

Suzana Popovic-Montag: I think that you should probably try to anticipate or at least think about these situations arising in the future and try to include some terms to deal with the specific scenarios where the interest of a beneficiary or owner is actually seized or disposed of involuntarily.

Ian Hull: So we want to keep an eye on the ball a bit here, because for example, the creditor of an owner or beneficiary in the trust situation, might try to claim an interest. Or there might be some sort of family law claim by a spouse that may be not as welcome as he or she might have been in the family.

Suzana Popovic-Montag: And given those realities, you could choose to include a term that would permit the other owners or perhaps the trustees or even the other beneficiaries, to purchase the interest of that creditor or other outsider who’s attempting to actually seize or acquire the cottage property.

Ian Hull: So finally and not necessarily most important, but a really, really important clause that we like to see in these agreements, is a dispute mechanism, an alternative dispute mechanism formula that’s set up in the contract itself. And in some situations, it’s set up in the trust arrangements.

Suzana Popovic-Montag: And the reason you want to do that is because when you’re drafting either the trust or the co-ownership agreement, you try certainly to anticipate as many of the possibilities and the circumstances that can arise but there might be something that got missed or something that couldn’t have been anticipated at the time. And if you need to then try to change or to alter the arrangement, you would need a facility or mechanism by which you could do that. And as you suggested, an alternative dispute resolution mechanism is the best and probably the most cost-effective way to try to do that.

Ian Hull: And one of the things that I put right in those dispute mechanisms is to force the families first and foremost, force them to talk. And you say that any one of the co-owners, and it’s the trust situation, one of the beneficiaries, can trigger what we’ll call is a family meeting of that nature, doesn’t have to be in person, maybe you can do it by phone or video, to see if you can hash it out. And even at that first meeting, you may well want to have a facilitator involved so that not necessarily to mediate but to make sure that you move along on the issues that are bothering the parties. But that alternative mechanism is important.

Finally the last thing I just wanted to say is that we’ve had a busy week last week in our own professional practices. I spoke to a group of financial planners on Monday about trusts and litigation relating to trusts and some of the topics that we talked about have been raised in our recent podcasts and certainly over the years in Hull on Estates as well. The other thing that Suzana I know you and I are co-lecturing on is the Windsor Estate Planning Council that we went down to, to speak to financial planners, lawyers, and accountants on the family meeting and the family office, which was a great success and a lot of fun. And then I’ve got an Ontario Bar Association, I just spoke at was dealing with the whole question of recent developments of the Operation Update seminar that was held last Friday.

So we’ve been busy and those are all good avenues to consider, other different sources of continuing legal education, I highly commend you to.

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

Ian Hull: Thanks very much.

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

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

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

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Estate Law Case Study - Hull on Estates Podcast #72

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

Justin de Vries: Welcome to Hull on Estates. You’re listening to Episode #72 of our podcast on Tuesday, August 14^th, 2007.

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.

Justin de Vries:  I’m Justin de Vries and I’m with Megan Connolly.

Megan Connolly: Hi.

Justin de Vries: And we’re going to discuss a case from our famous Court of Appeal. It’s actually a 2005 decision but I think it recently came into my path and I thought it was worthwhile talking about. Its Simone Estate vs…

Megan Connolly: Cheifetz.

Justin de Vries: Cheifetz, thank you Megan.  I’m not very good at that.  It’s a silent “C”. In any event, the panel was Doherty, LaForme and MacFarland.  So Megan, why don’t you take it away and just give us a little bit of the factual background and then we’ll discuss the meat of the decision.

Megan Connolly: The deceased in this case were Emidio and Laila Simone.  They were killed in a plane crash. Emidio had been an entrepreneur and he owned a tooling company. They had a lawyer who was Stephen Cheifetz and he did all of their legal work for them.  This included drafting both of their Wills.  Now in their Wills, they named him and I’m guessing each other, the estate trustees because they died together and the case says that when they died he was the only existing estate trustee.

Justin de Vries: I think that’s right.

Megan Connolly: Now the Simones’ were survived by two daughters who were eighteen and nineteen at the time.  And I think the two daughters inherited the entire estate.

Justin de Vries: And it would have been a significant estate.  And the case also says, of course, and maybe this is why, there was a decision that the relationship deteriorated between Cheifetz and the two daughters.  And then the two daughters brought an application to remove him as executor and trustee.  And he eventually resigned and then there was a passing of accounts.

Megan Connolly: That’s right.  So he brought an application to pass accounts and the daughters objected and sought through a payment of money that had been paid to him and to his holding company in the way of salary and compensation. At the passing of accounts, the judge ordered Cheifetz to repay about $500,000 in compensation and other fees that he and his holding company had received.

Justin de Vries: And there was some questions raised by Mr. Justice Flinn who was hearing the case that it may be that Mr. Cheifetz was self motivated.  But in the end, he really didn’t make any profound findings on that. And interestingly enough, the kids, the two daughters, had asked for over $900,000 to be repaid.  So they got some but not all. And then what was interesting is the TD Canada Trust Company was appointed executor of the estates of both parents as well as trustee for a family trust.  And then Canada Trust, in its capacity as estate trustee, sued Mr. Cheifetz, his wife Barbara, and two companies of which they were the sole officers and directors, their family trusts.  And as the court said “person unknown” for damages, essentially for breach of trust and breach of fiduciary duty on the part of Mr. Cheifetz while he acted as executor and estate trustee.

Megan Connolly: So Cheifetz then submitted his defence.  And Canada Trust turned around and tried to strike out parts of that defence on the basis that some of issues he’d raised in the defence had been previously decided by the judge on the passing of accounts. And they said that since these matters had already been decided, he couldn’t raise them once again.

Justin de Vries: And just from a procedural point of view, Canada Trust brought a Rule 20 motion which is a Summary Judgment Motion, which was ultimately not allowed or not granted by the judge at first instance.  And they also brought a Rule 21 motion, presumably for failing to show a reasonable cause of action or abuse of process or more likely res judicata and that was granted. And in fact, the court, in first instance, and it wasn’t Flinn ‘cause this is a separate proceeding, but the judge at first instance agreed that Flinn had already considered these matters on the passing of accounts and certain defences were struck from the Cheifetz’s Statement of Defence. That in turn was appealed to the Court of Appeal, which brings us to this decision. 

What the Court of Appeal said, which has caused, I think, some controversy among the estate bar, is that essentially all that a passing of accounts is looking at is compensation and the right amount of compensation, even though the court recognizes that Section 49 of the Estates Act says that on a passing, the court has the discretion, and it’s quite wide discretion, to look into any matters and order damages or that amounts be repaid. So many people in the bar, in the estate bar, felt that if you don’t raise it on an estate, on a passing of accounts, in other words, if you didn’t raise some sort of a claim for damages or a surcharge for money to be paid back, then you were out of luck and doing it in a separate proceeding at a later date. But this case made it clear that the court didn’t believe that to be the case.  They felt, in fact, that a passing was more or less limited as I said to compensation and that a breach of trust or breach of fiduciary duty claim was really separate.  And there was no reason that this could not be brought now. And while some of Mr. Cheifetz’s behaviour would have an impact on the breach of trust and was considered in the passing of accounts, when it was considered in the passing of accounts, it just reduced his compensation.  It didn’t go to whether or not he was negligent.

Megan Connolly: Right and the Court of Appeal said that during the passing of accounts, the judge never specifically decided or even considered whether there had been a breach of trust or breach of fiduciary duty. Now while a breach of trust could be a reason for reducing compensation, the fact that compensation was reduced doesn’t mean the judge decided a breach of trust occurred.

Justin de Vries: And Mr. Cheifetz didn’t argue interestingly enough, to say well hold on, there was a passing of accounts - you should have raised these issues as to damages because of my behaviour and an ordering back of money on the passing and therefore you’re barred because of this order from proceeding. In fact he said listen, I have a right to defend this action for breach of fiduciary duty, breach of trust and I’m doing it. And what is a little bit unclear, at least from the Court of Appeal decision and we would have to look carefully at the lower Court decision, is whether or not Section 49 was relied on to pay back the money. But I don’t think it was.  I think it was all the compensation taken by Mr. Cheifetz and part of that was ordered repaid.

Megan Connolly: Now the other point the Court of Appeal raised was that in the action for damages for the breach of trust and breach of fiduciary duty, the parties for the proceeding were different. In the action, the parties included Cheifetz’s wife, and I guess two holding companies they had an interest in. The wife wasn’t a party to the passing of accounts.  So if on the action the court had said we’ll rely on the findings of the judge in the passing of accounts, the effect would have been they would’ve in effect been binding the wife who wasn’t a party to that passing of accounts to the findings that had been made in it. 

Justin de Vries: Yeah and not surprising, the court said there’s a high onus or a high standard when that is the case. It is possible, but the court wasn’t prepared to find it in this case. What I think is interesting as well is I wonder, just sort of cloud punching, how aware or why the Court of Appeal didn’t consider the fact that on a passing of accounts where Section 49 is relied on and serious damages are asked for, or what some people call a surcharge, in other words, the money to be paid back because of a breach of trust or negligent management of monies or administration, that usually what happens is that there is a trial of an issue that is carved out.  So you can have pleadings ordered by the court, you can have discoveries, and you can have actually a trial. So it seems to me there’s some merit to say listen, on a passing of accounts, if you want to take a run at someone and want damages, you need to raise it then, because there is a procedure to handle that, and that is, trial of an issue. But the Court of Appeal said no, we essentially think that a passing is just for comp and you can always bring a breach of trust and fiduciary claim later. 

So the one cautionary note, I think, is that when people say, well there’s a passing of accounts and you’re essentially…your liability is extinguished or you can’t be sued once the accounts are passed, certainly for a breach of trust case that may not be quite as clear.  And you may be able to argue that you’re entitled to bring it, even though there has been a passing.

Megan Connolly: Right.

Justin de Vries: Alright, that’s our podcast for today.  Hope you enjoyed listening and we’ll speak with you again next time.

Megan Connolly: Bye.

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

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

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

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Listen to "Vacation and Recreational Properties"

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.

Vacation and Recreational Properties - Hull on Estate and Succession Planning Podcast #72

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.

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Listen to "Trusts"

Read the transcribed version of "Trusts"

In this episode of Hull on Estates, Ian and Suzana have a discussion dealing with the use of trusts. They use the example of a case where a family put their cottage into a cottage trust, and when the children grew older, the children wanted cottages of their own.

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

Trusts - Hull on Estates Podcast #71

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

Suzana Popovic-Montag: Hi and welcome to Hull on Estates. You’re listening to Episode 71 of our podcast on Tuesday, August 7^th ,2007.

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.

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: I took a little time off last week.  And during my down time when I was relaxing, I was listening to some of the old podcasts and listening to some of our previous attempts at trying to pass on the word. As I noted, and historically, what we’re trying to do in these podcasts is talk about real life examples of things that we are gonna, sort of the topic we’re dealing with.  And today’s topic, I thought we could deal with, is just begin to consider some of the details, in some more detail the use of trusts when doing estate planning. And I…it came to mind and what sort of triggered me to get into this topic was a recent example of a situation where a family had put their family cottage into a cottage trust.  And sort of what unfolded, just the story is.  And it’s a case that’s reported in the Ontario Courts, is that the father who set up the trust when the children were young for a lot of the reasons that we’re going to talk about over the next couple of podcasts: protecting creditors and things like that.  He set it up and then lo and behold, by the time…they lived, and enjoyed it when they were young, and then the children were hitting their twenties and started to want their own cottages and want their own different places.  And what happened was fairly aggressive litigation ended up ensuing. And what was a happy place turned into a happy place for lawyers as opposed to the family.

Suzana Popovic-Montag: I’m actually quite surprised, Ian, these days how many of these, you know, we call them cottage fights, we actually see. It’s quite remarkable that that’s sort of become such a flashpoint.  I guess, as people become more affluent, they have, you know, a second property or cottage property.  It just opens up these avenues for litigation. 

Ian Hull: Well it does.  And so let’s, you know, why don’t we go back to, after sort of considering that real world example. Let’s go back to sort of first principles on trusts because a lot of clients will come to see us and they’re anxious to set up a trust.  And what I thought we might do is, let’s sort of start at the beginning here.  And what is a trust all about? 

Suzana Popovic-Montag: Well, Ian, a trust is created when you have a transfer of property from one person to another, who’s usually called a trustee.  And there can be more than one trustee, who will hold that property then in trust for the ultimate beneficiaries.

Ian Hull: And so that ultimate beneficiary is the one who will enjoy the asset at some point in time or during the course of the trust.

Suzana Popovic-Montag: That’s right.  And that person is known to have basically the beneficial interest in whatever the asset is that’s actually settled in the trust.

Ian Hull: So as I understand, of course there are various trusts, there are different types of trusts that are created. What are some examples?

Suzana Popovic-Montag: Well, Ian, we can have a trust that can limit what kind of interest the beneficiary can have. And normally what you have is you have a capital and an income interest that arises in a trust.  And you might provide that the beneficiary is only entitled to the income that is generated by the assets in trust.  Or you might take it a step further and say they also have a right to encroach on capital as well.

Ian Hull: So the more the flexibility that’s created into this, and now when I say flexibility I mean the trustees, what we call sort of the presidents of this little company, the people who are in charge. The more flexibility that the trust document itself gives them, the more opportunities for creative use of these trusts there are. And the balancing act, of course, is that trusts give us protections, fundamental protections that we’re gonna talk about.  But at the same time, we can’t go outside of the parameters of that or we’ll lose those protections.  And, for example, we’ll lose some of the tax advantages, we’ll lose some of the creditor protection advantages that they can have. What is…let’s just start with the tax side.  Without getting overly technical, what are the sort of significant consequences from a tax standpoint with a trust?

Suzana Popovic-Montag: Well, generally speaking Ian, when you create a trust in the right circumstances, you can actually reduce the taxes that would be paid on the income that’s earned in the trust in a particular year.

Ian Hull: So the creation of the trust itself…when we establish a trust and let’s go back to that cottage example. We have a family, a young family starting out.  And the father decides that he’s a stay-at-home Dad and the Mom is working hard and making lots of money. And they decide that they want to have a secondary residence.  The principal residence is the house in the city and they decide they want a recreational property. So they establish this trust.  And the mother is a, let’s say a financial advisor, someone who might be professionally, personally liable for claims and so on.  So they put the trust…they think well, gee, let’s buy this cottage.  And we want it, of course, ‘cause the kids are young and cute and want to swim and so on. We want to put this cottage into a trust.  The first significant tax consequence that we want to keep in mind is, of course, that there’s a price, the cost of that trust, the cottage that goes into the trust, is the starting point of the value that Revenue Canada starts to use as a benchmark. And what some people do, though is, is that they’ll buy the cottage.  And then five years later, decide they want to create this trust for a bunch of good reasons. And we can get into that for tax planning reasons and so on.   But we can’t forget the sort of first principle tax consequence of creating a trust is that when you put the asset in, there’s a deemed disposition. 

So an example is this, is that five years later, you’ve bought this cottage in Muskoka.  And five years later, you realize you want to put it in a trust but then you find out that there’s going to be a deemed disposition.  They’re going to take this asset and whatever you paid, say you paid $500,000 for the cottage five years ago and now the cottage is worth $750,000. The one consequence even before anything else happens is the tax person is coming to collect some tax. So it’ll be a capital gains tax that’s gonna get created because there’s the disposition of the trust - the dock, the cottage from your name personally into the trust itself. So that’s just something to keep in mind.  And I say that example because you wanna plan ahead, you wanna think ahead.  Like anything, when you want protection from these sort of useful planning tools, you have to stop, take a deep breath and think long term, short term, and even medium term as to what you want to accomplish. And if you don’t, you might get stuck with a tax hit that makes this, creating this trust impossible.  Because for my example, maybe you can’t pay the income tax that’s payable on establishing the trust because you hadn’t thought ahead. 

Suzana Popovic-Montag: That’s a good point, Ian, and I think that that’s something that, you know, you get so embroiled in the planning and, you know, the benefits of the trust that you might miss something as basic as the fact that there is this deemed disposition the moment you settle property in trust.

Ian Hull:   So the tax consequences are one thing and we’re not going to get overly intense on the issue, but that’s something just to keep in mind. But I think the important rule, as you just said is, is to sit back, take a deep breath and say, what do I want to do, what do I want to accomplish by this trust?  And then the second thing, and we’ve talked about this in other podcasts, is that you don’t want to create an estate plan that is tax focused exclusively. You need to…I tell my clients consider all of the options, not just the tax consequences of every option. And the other part, the other sort of other half of creating a trust is, is that there’s a certain amount of control that you lose.  And that was what that whole case was about when we started at the beginning was is that Mom and Dad thought it was their cottage.  They put it into a trust for what was, at that time, creditor protection.  And we can talk about creditor protection and what that means. But basically, it makes it tough for creditors to come after the asset if it’s in a trust. But they did that and they didn’t think through.  Like the tax example, they didn’t think through the consequences of creating the trust and the loss of control from their standpoint. Because all of a sudden, what happened in that case was it wasn’t their cottage anymore.  It was actually the beneficiary’s cottage and in that case, it was the children. So the children had a tremendous vote on what would happen to this property.  And when they got older, the parents got older and the kids got older, and when they wanted to sell the cottage, the kids said I don’t…one kid said I don’t want to sell.  The other kid said I do want to sell it but you’ve got to pay this price for it.  And it created a whole bunch of litigation.  And so the loss of control was something that when they set it up, when they were cute at two and three, they never thought through.  And they didn’t…well maybe they did think through…but they didn’t think it through well enough because obviously litigation ensued. 

So it seems to me, anyway, that, you know, like all estate planning tools, there is always sort of this fancy, use a fancy term like create a trust and people go to it and they gravitate to the idea.  But they sometimes don’t think through the whole consequences of it. And I’m not saying we shouldn’t create trusts, we shouldn’t use them.  They’re perfect planning tools in the right situation.  And I don’t want to be for a minute being nay saying about a trust.  I’m just trying to make it clear that I think that, you know, my clients sometimes don’t think through all of the consequences.

Suzana Popovic-Montag: And it’s just like a lot of the probate tax planning that we see and we want to be sure that we’re doing it for the right reasons.  So that we don’t become a product of like, the tail wagging the dog essentially.

Ian Hull: Absolutely.  So the last thought I had on this was in this sort of introductory comments on the trusts and using trusts in estate planning. Another benefit of creating a trust is, is that…and this is a positive note as opposed to the negative, the tax and the loss of control which I always like to start with the negatives and then see if the positive balance out. And one of the things a trust does is it creates a trust that you can leave an asset in trust for beneficiaries that really protects that inheritance from the beneficiaries’ creditors and it is essentially a nice legacy that you’re leaving.  And you’ve got some mechanism to preserve that legacy.  And so there are lots of good reasons to create the trust. And as I say, I don’t want to focus exclusively on a cottage.  But a cottage is an easy example where, if you really do think that you want that cottage to stay in the family for as long as many generations as you possibly can, then it does create an important mechanism. And using the cottage example, though, you wanna make sure that you’ve also got it well funded so that there are expenses that are being covered or some mechanism being covered. Because if that starts to dry up, then you can’t maintain the trust and those sorts of things.  But that’s the other, sort of my third thought, in terms of the use of trusts generally.

Suzana Popovic-Montag: And maybe just to add a little bit to that Ian.  Even if you don’t have creditors necessarily, you know, sort of looming around the assets. A trust is also a very good means by which to protect minor beneficiaries, individuals who are less than the age of eighteen or nineteen whatever it might be in whatever jurisdiction you live in. And it protects those individuals from becoming, you know, suddenly very affluent or from not managing the assets properly until they become responsible and good citizens who are in a position to accept large bequests or important assets in their own names.

Ian Hull: Now that’s a great point.  Alright, well I think we’ve at least scratched the surface on the concept of trusts and estate planning. We have lots more we can consider and talk about.  And we’ll save that for another podcast.  Thanks very much, Suzana.

Suzana Popovic-Montag: Thanks to you, Ian.

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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Continuing from yesterday's blogpost on C.C.Chapman and Mitch Joe's podcast about personal branding, we wanted to elaborate on the importance of authenticity . Your success using social medium such as blogs and podcasts lies in producing a personal brand that is truly "you" and not something that is manufactured to fit within your business model or personal agenda.

The challenge is learning to understand what message you need to communicate, rather than the actual presentation of the message itself. Essentially you have to do your best to make sure there is no disconnect between who you are and what you are trying to communicate.

Throughout this podcast, C.C. and Mitch continually impressed the importance of finding the “real you”. In order to successfully accomplish this difficult task, you have to discover what your story is. Mitch makes it clear that a real story lies at the core of any good, transparent and authentic communication piece and the story is generated from your natural passion.

An interesting example of a corporation who has successfully driven home their message is the Harley Davidson Company. They truly tell a story. One would initially assume that the Harley Davidson Company simply manufactures motorcycles. However, they go much further to market their product. In fact, they market their motorcycles as components of a lifestyle founded on American values, specifically power and freedom.

The ultimate marketing goal is to become a mental tattoo on your audience or client base.

We hope that this introduction to the wise words of C.C. Chapman and Mitch Joel has been helpful.

All the best,

Suzana and Ian.

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As we know, in our professional life and in our personal life, we are constantly dealing with and managing stress. In Dr. John's August 29th 2006 podcast, he dealt with this issue from an interesting perspective, focusing on the effect that stress has on your body, how to recognize stress and how to de-stress.

Dr. John began by reminding us about the harmful effects that negative emotions can have on your body.  Negative emotions cause the body to respond by releasing hormones, that can be helpful if released in moderation, however in the context of a stressful situation, these hormones become harmful, and can actually reduce the amount of blood flowing to your heart.

Dr. John elaborated, explaining that adrenaline is one of these hormones which can be very damaging to the your body when it reaches a high level and remains for too long in the body. It increases your heart rate and blood pressure, prevents deep breathing, and tenses up your muscles. If you are chronically stressed, the constant presence of these harmful hormones results in a decline of your immune system functioning, you will lose bone and muscle mass, and your fat will accumulate at a faster rate. Memory and learning capability can also be impaired.

Dr. John identifies a little-known fact. In regard to stress, it is not so much the stressful big events (such as a death in the family) which cause the most damage. Rather it is the little things that are slowly killing us. The daily accumulation of little stressors does the majority of the damage because it takes a constant toll on our body.

Things like traffic, deadlines and running late cause chronic stress, and as these factors put a constant strain on the body, you cannot rest enough to properly recover.

In a future blog, we will talk about some of the suggestions that Dr. John has with regard to avoiding chronic stress and changing your lifestyle to eliminate stress.

All the best,

Ian and Suzana.