This week on Hull on Estates and Succession Planning, Ian and Suzana finish up the discussion on the question of accounting by reviewing deductions from compensation and briefly sum up the procedure of the passing of accounts.

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.

Deductions from Compensation - Hull on Estate and Succession Planning Podcast #125

Posted on August 12, 2008 by Hull & Hull LLP

Suzana Popovic-Montag: Hi, and welcome to Hull on Estate and Succession Planning. You’re listening to Episode #125 of our podcast on Tuesday, August 12^th, 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.

Suzana Popovic-Montag: Hi there, Ian.

Ian Hull:  Hi, Suzana. How are you doing?

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

Ian Hull: Just great. We’re having some fun with this whole question of accounting, and I think I’ve done the numbers, and I think we’re almost done. But before we go through our podcast today, let’s remind everyone, please feel free to call in on our call-in number and our call-in number is of course, 206-457-1985.

Suzana Popovic-Montag: Or send us an e-mail at hullandhull@gmail.com or of course, you can visit our blog at estatelaw.hullandhull.com as well. 

Ian Hull: So before we launch into the substantive podcast today, I just wanted to do a couple of things. One, I want to deal with an e-mail that came in and another is I want to just welcome people to listen and look at the, last week we enjoyed Jordan Atin who is our associate counsel here, our Senior Associate Counsel, and he was on Canada AM for four days in a row talking about family feuds and the link to the webpage where CTV is still running the streaming is worth looking at, and we’ll make sure that’s in our show notes.  But Jordan had a great opportunity to talk about family feuds and sort of the issues that arise out of his book, “The Family War” which is co-written by Les Kotzer and of course, my good friend, Barry Fish.

Alright, so we were talking about some of the e-mails. And we had two e-mails last week come in. Both of them were semi-related and so I’m sort of going to merge the two of them together. And the question really comes down to this:  What are we talking about with The Shoebox Effect? And what we’ve been mentioning in the past and what we’re going to talk a little bit about today, because part of our wind-up is the importance of vouchers, is The Shoebox Effect is this. When you are a trustee, no matter what you think, no matter what you do, you will be someday possibly asked to show your receipts and that’s all I’m saying The Shoebox Effect is. Make sure you keep receipts, even if it’s in a shoebox. Your lawyer or your accountant can work on the presentation of it when you ultimately have to go to Court, but keep the receipts. So that was the two questions that came in, actually, both were from different parts of Canada but asking about the same question. So I’m not going to dwell on it other than that and say that when we’re winding up our comments on accounting, please, please, please keep your receipts if you’re a fiduciary.

Suzana Popovic-Montag: And just to add one thought to that, Ian, I would also suggest that it’s really helpful to make sure that you document as much as possible everything that you do as a trustee.  And when it comes to exercising your discretion, and if particularly the Will or the trust document allows you to have a broad discretion, to write down your thoughts or your reasoning or the underlying reasons that you decided to do something or not do something and include that in the shoebox that you end up bringing to a lawyer one day possibly.

Ian Hull: That’s a great suggestion and it comes down to, when we’re talking about getting paid for all of these efforts, the deductions from compensation that we briefly talked about in the last podcasts, what can you look to? So we talked about that you can get paid, say approximately 5% as a tariff, so to speak.  And we’ve talked about some of the things we’re going to knock you out from, but one of the easy deductions is the delineation between the executor’s work and lawyer’s work or accountant’s work. And that ties into your comment, Suzana, on docketing, keeping records beyond just the receipts that I talked about.

Suzana Popovic-Montag: And things for instance, like the preparation of tax returns, when fees are associated with that, depending on who’s preparing the tax returns and how much those fees are, that’s another thing that might possibly be a deduction from compensation if the trustee for instance is an accountant. And these are situations where a trustee is an accountant or a lawyer that you see most often, where these issues can arise.

Ian Hull: Alright, so another concern that we raise and probably the last deduction from compensation we’ll just mention now, is this whole idea of pre-taking compensation. Under Ontario legislation, if you’re a fiduciary or, as I say, a guardian under the Substitute Decisions Act, they actually allow you to pre-take your compensation, take before you’ve made your efforts. But we’ve talked about in the past the cases, and we’ve talked about them in the show notes as well, the case law that talks about Re: Knoch which we talked about in our previous podcast and others, and we want to be very, very careful about pre-taking, getting paid before you’ve done your work. So that’s an easy deduction.

Suzana Popovic-Montag: Ian, just a question that I find often gets asked is whether or not GST is actually payable on executor’s compensation. What are your thoughts about that?

Ian Hull: Well, that’s a great question and it’s a murky area of the law.  And what has happened in the past is you would typically have to look at it case by case. First and foremost, you have to look at the amount of the payment that the compensation is. If it is over $30,000 that you’re being paid in compensation, which could be the case because it’s typically a one-time payment, you may have to pay GST on that income as having rendered services. So it’s really case-by-case. Talk to your accountant, get good advice before you wrap up that issue, but that’s an excellent question and a really important heads-up for people who are accounting and doing compensation work.

Okay, I think we’ve pretty well covered off our accounting in the in-depth form and so we wanted to make sure that we stayed the course and came full circle to our sort of checklist that we’re trying to work through. And one of the things I will say is we’re hopefully going to be changing our format and trying to pick up a video feed for our podcasts which is in the process. Some technology glitches haven’t allowed for it to fall in just yet, but we’re going to be moving into some different topic areas. But one of the topic areas that we have to, I think, just sort of at least wrap up in a minimum way, is the process itself. We’ve talked about the passing of accounts process but let’s talk about the physical steps that are taken because many people don’t understand passing of accounts and what you can expect in the courtroom once we’ve got the Court format accounts.  And my introduction to this, by way of the fact that we’re going to be moving this into an audio, is that we’re going to have our own mini-series on this issue, where we’re really going to flush out these topics.  But I think its worthwhile talking about them briefly now, so that people understand what they’re going to get themselves into once they’ve got these beautifully created Court format accounts.

Suzana Popovic-Montag: And procedurally speaking, certainly here in Ontario, the Rules of Civil Procedure will govern what is included in an Application to pass the Court format accounts. And we started when, before we got into this discussion of how we would audit estate accounts or how to prepare a best kind of set of accounts in the circumstances, we talked about the fact that it’s all part of an application process.  And so there will be an actual Court date that’s assigned to the hearing for the return of the executor’s accounts, and you’ll serve a Notice of that application on all the beneficiaries together with, in many circumstances and many situations, a copy of the accounts as well. And the Rules themselves specifically provide what has to be in this Application record and I thought, Ian, it might be good to just sort of flush out some of those specific requirements.

Ian Hull: Alright. Well I think and it’s helpful because it’s not quite as daunting when you get the document itself thrown at you because, as I say, a lot of these accounts are passed in a non-contentious environment.  But it’s legal mumbo-jumbo to some people so you want to make sure you sort of know what you’re getting yourselves into when you get it. And the main document behind the accounts is the Affidavit verifying the accounts, they’re proving that you’re swearing to the truth of the accounts, and that’s the fiduciary sort of statement that says these accounts are true and accurate.

Suzana Popovic-Montag: And that Affidavit, as I say, is included in the record that is served upon everyone who has a financial interest in the estate. And financial interest in the estate I think we’ve talked about on previous podcasts, has a very broad meaning in the sense that even people with a contingent interest in an estate will be served with the accounts as well.

Ian Hull: And talking about service, we don’t want to forget that there may be government agencies that we have to serve, of course; the Office of the Children’s Lawyer should there be any minor child’s interests, or interests of those who are unborn and unascertained.  And without getting too technical about it, we just want to look at the trust document or the Will and see if there is a trust. And typically if there’s a trust, more often than not, almost certainly in fact, the Children’s Lawyer would be served, that’s the Office of the Children’s Lawyer.  And it’s different in each Ontario jurisdiction, but basically the lawyer in charge of minor interests. Another person to be concerned about serving is

Suzana Popovic-Montag: the Public Guardian and Trustee. That office would be served on behalf of any incapable beneficiaries of the estate. And so just like the Children’s Lawyer protects the minor, the unborn or the unascertained, the Public Guardian and Trustee here in Ontario will represent those incapable beneficiaries.

Ian Hull: So those are just things to keep a heads-up on so that you don’t get out of the box and miss a page of the application process by not putting important entities on notice. Obviously, we come back to our cardinal rule: Read the document, read the Will, read the trust and make sure you’ve served everyone named in that, but the Public Guardian and Trustee and the Office of the Children’s Lawyer, are two entities that aren’t necessarily named and quite often aren’t named, so just a heads-up. 

So I think that gives you sort of a sense of what the document itself, in a friendly environment will be, so I think we’ll wrap up today’s podcast and again reminding you, please feel free to e-mail at hullandhull, h u l l a n d h u l l @gmail.com.

Suzana Popovic-Montag: Or feel free to call and leave us an audio comment at 206-457-1985. Thanks very much, Ian.

Ian Hull: Thanks, Suzana.

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

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

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

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Strategies to Prevent Estate Litigation - Hull on Estates Podcast #119

Posted on July 15^th , 2008 by Hull & Hull LLP

Rick Bickhram: Hello and welcome to Hull on Estates. You’re listening to Episode 119 on Tuesday, July 15^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.

Natalia Angelini: Hi and welcome to another episode of Hull on Estates. I’m Natalia Angelini.

Rick Bickhram: And I’m Rick Bickhram.

Natalia Angelini: If you want to be heard on Hull on Estates you can participate in our discussion by leaving a comment. Give us a call at 206-350-6636. The number is in the show notes along with our e-mail address, hull.lawyers@gmail.com or you can visit our blog at estatelaw.hullandhull.com.

Today we’re going to be talking about strategies to prevent estate litigation. This is the first time Rick and I are blogging together; this should be good fun.

Rick Bickhram: Whoo hoo!

Natalia Angelini: Glad to see you’re excited, and I’m excited about our topic. I think it’s definitely something that testators want to keep in mind. So, Rick, why don’t you get us started.

Rick Bickhram: Thank you, Natalia. There really is no substitute to good planning. Good planning can go a very long way to prevent a family fight down the road when, unfortunately, someone demises and it comes time to divvy up the assets of that person’s estate. So, Natalia, what do you think are some good tools that a testator can consider when, or just before, executing his Will to help manage the estate planning?

Natalia Angelini: Well, Rick, aside from as you said, having a properly drafted Will, you say you’ve got good planning in place, and you have your Powers of Attorney in place.  Aside from those kinds of things, there are a bunch of strategies that a testator can think about, particularly if they know that in their unique circumstance, they have likely got a Will challenge brewing post-death. 

So some of these strategies are gifting assets before you die. And it can be somewhat of a dangerous strategy, but you know, with the proper advice and the right circumstances, it can have its benefits. So one of the first things you want to think about when you do this, that might be a good idea to think about rather, is getting tax advice and accounting advice and seeing a lawyer who can properly paper any kind of gifts that you want to give away.   But it definitely can be a way of ensuring that your estate is either as minimal as possible or at least cuts out some of the contentious items because you’ve already gifted them away.

Rick Bickhram: And I think this is a really good tool because let’s say, for instance, mom dies and she has two sons. She gifts all her assets to one of the sons. The son who received nothing is obviously upset about the situation, so what does he do? He goes and challenges the Will. Well, what would he get in a Will challenge if he was successful? Really not that much. If the gift aspect was done correctly and the reason being is that all of the assets in that regard would have probably transferred outside of the estate.

Natalia Angelini: Right, and I think you’re touching on a good point there. If by gifting assets before you die, you do it in a way where, let’s say, you’re transferring ownership into joint names with your favourite children, then that is something that can still be contested.  But it’s likely a type of challenge that’s harder to win than a Will challenge.

Rick Bickhram: Well, with that said, with every benefit there is a burden, and with this estate planning tool, there are many risks as Natalia pointed out earlier on. Some of these risks include, let’s say, for instance we put the subject asset into joint with the son, going back to my first example. It’s my intention here to leave this asset to my son.  Upon my demise, my son and his wife separate, eventually divorce.  That asset could be the subject of matrimonial litigation over the asset because it would possibly be considered the matrimonial property.

Natalia Angelini: Yeah, that’s right. And also it could be subject to attack by any creditors of your son’s, so that’s definitely something to keep in mind. But you know, there is a certain strategy to doing this and I think before a testator decides to go this route, some of the things they should think about are: number one, that they have a loving and trusting and close relationship with their favourite relative; that they won’t require these assets back for their own support; and that I guess that she or he accepts that they also won’t get back these assets unless they get the consent of the child that they’re gifting it to.

Rick Bickhram: All very good points, Natalia.

Natalia Angelini: Thank you, Rick.

Rick Bickhram: Now moving along, another estate planning tool, which is a double-edged sword here again, is videotaping. The testator could videotape herself explaining her intentions after the Will, but I must point out that a videotaped Will, in the jurisdiction of Ontario, is not considered a Will. A Will must be in writing.

Natalia Angelini: That’s true, Rick, but it can be a tool that can really help because you have an opportunity in a videotape first of all, to be seen and to be heard, and to explain exactly why your wishes are as they are, and why the bequests are set out as they are. And having said that, though, because it is a videotape, it can be very carefully scrutinized and little things like mispronunciations or forgotten names or fidgeting, that kind of thing, unusual phrasing, or other kinds of mannerisms, those can potentially be used against you by someone challenging a Will and they can perhaps assert that well, that’s evidence that she didn’t have mental capacity or that he was unduly influenced. So I think if your eyes are open to that, when you are doing that kind of a videotape, it might help in actually how it gets recorded. And, you know, those risks are some reasons why sometimes lawyers don’t recommend videotaping. But I think that it is, for the right kind of testator, it can be helpful.

Rick Bickhram: Good point, Natalia. Moving along in terms of other estate tools that can be used when managing or planning a person’s estate. One tool that is strongly recommended is known as the family meeting or the family conference. And in the family meeting or family conference, what it is really is, it’s an informal meeting where the testator here sits with her family, her children, mother and father if they’re alive, nephews and nieces if they’re included in the estate, depending on how close the family is, and what their plan is. It’s pretty much sitting down with your family and explaining to them what you’re going to do and why you’re going to do it. And Natalia, maybe you can shed more light on this because you’ve seen more cases than I certainly have. Why is this such a good tool?

Natalia Angelini: It’s a good tool because it’s really your only chance or the main way that you’re going to really speak directly to your beneficiaries, and to those that maybe you’re not intending to have as beneficiaries and really explain why it is that you have structured your estate in the way that you have. But I don’t want to confuse a family meeting with a family conference. A family conference is a formal meeting where you’ve got a third party chair; we do them at our office, for instance, and you’ve got potentially the accountant of the testator in attendance and the financial planner in attendance, and so it’s a much more structured event and I podcasted on that previously. Unfortunately I don’t have that episode off the top of my head, but if you’re interested in that, we certainly do have quite a detailed podcast on it.

So, what Rick was talking about which is a more informal family meeting, just with you and your family, you know, it’s got its risks because, of course, you can create real hostilities there.  But it can also potentially avoid litigation down the road because you’re all together and there are witnesses and people that can give favourable evidence to say well, mom wanted her estate this way. So that might avoid a Will challenge down the road.

So why don’t we go to another strategic tool that you can use to hopefully prevent litigation. And I think, I don’t think that this is used often enough, but I certainly do see it more and more. And that is inserting protective clauses in Wills.

Rick Bickhram: I’m going to guess but I think the protective clause pretty much protects the testator’s wishes and ensures that they’re pretty much flushed out or carried out.

Natalia Angelini: Well I think if it’s enforced, yes. And I think, you know, that leads me to my next point, which is that this type of clause isn’t valid in every jurisdiction and even if it is, it really ought to be drafted with precision so a Court will accept it. But essentially these types of clauses either say anyone challenging this Will will lose their interest in the estate or it will say that if anyone challenges the Will and that kind of clause can also read, if you challenge a Will and you’re unsuccessful in the challenge, then you lose your bequest. So there can be two different kinds of phrasing; I mean there can be several different kinds of phrasing but those are two that I’m aware of. So it really creates a disincentive to proceed with Will challenge litigation.

Rick Bickhram:  So it’s pretty much like an all or nothing scenario, correct?

Natalia Angelini: Exactly. And another way to do this more indirectly perhaps than having an actual protective clause is to give a gift directly to your grandchild.  so you can bypass your child that you’re not, that you don’t want to benefit from your will and you can give the gift to your grandchild, and that can really discourage your child from challenging the Will because they will essentially be at cross purposes with their own child. And really, by litigating and challenging the Will, they’re potentially diminishing their own child’s claim and who wants to do that?

Rick Bickhram: All really good points again. Good stuff, Natalia.

Natalia Angelini: Thank you, Rick.

Rick Bickhram:  The final point we would like to touch on today, the final tool that we would like to explain today is basically mental assessment. How does the mental assessment tool work? Should it be used and if so, how could it be used? What are your thoughts on that, Natalia? Natalia has more litigation experience than I do, so she could…

Natalia Angelini: Oh, don’t be so modest.

Rick Bickhram: She could provide more background here in that regard. My guess is, if an assessment occurs, just around the same time as when the Will is signed, and it is a favourable report, it could be beneficial to someone who is defending a claim against the estate that mom or dad lacked the testamentary capacity to execute the Will. What do you think about that?

Natalia Angelini: I think that’s absolutely the case. I mean, it certainly can be just one of the tools in your arsenal. If you know or you suspect that a Will challenge is going to come down the pipeline, then it’s a great idea, especially if you know that testamentary capacity is going to be an issue.  It’s a great idea to have yourself professionally assessed. There are other ways to do it; you can go to your family doctor that you’ve known for 40 years and have them write a supportive letter and/or you can get professionally assessed.

Rick Bickhram: What do you think, Natalia, about let’s say for instance, I’m going to execute my Will and I go see my family doctor. My family doctor has known me for a few years obviously, he’s my family doctor. I go to him, I explain to him I’m about to execute a Will and I would like for him to write me a letter, pretty much explaining his observation as to my mental capacity. Do you think that that letter would be given much weight presuming, after my demise, there is an estate battle between the beneficiaries of my estate?

Natalia Angelini: Well, I mean, I think that’s going to depend on the particular facts of the case and what all the other medical evidence is, but it certainly can’t hurt.  And if your family doctor has known you for many years and had the time and opportunity to really observe you, and their evidence really brings that out in trial, then that letter, coupled with their evidence, could be quite helpful, particularly if it’s done close to the time of signing the Will and I think that’s important, especially when you go the other route and you get a mental capacity assessment done. And that is likely, and again depending on the specific facts, an even more useful tool because someone who is hopefully, a professionally recognized capacity assessor and they are looking specifically to determine whether you have the mental capacity to not only manage your finances but also to make a Will.

Rick Bickhram: Well, Natalia, I think that brings us to the end of this week’s discussion.

Natalia Angelini: That’s right and I wanted to say it was great podcasting with you, Rick. We got some of our ideas from a great book written by Jordan Atin, Barry Fish and Les Kotzer, called “The Family War - Winning the Inheritance Battle. It’s a great book and it does cover a bunch of areas and this was one of them, so definitely an interesting read. And we look forward to hearing from our listeners. You can send us an e-mail at hull.lawyers@gmail.com or just pick up the phone and leave us a message on our comment line at 206-350-6636. Be sure to visit our blog at estatelaw.hullandhull.com where you’ll find even more information and discussion on today’s practice of estate law. We hope you enjoyed the show. I’m Natalia Angelini.

Rick Bickhram: And I’m Rick Bickhram, until next week, so long.

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

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

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