On a contested passing of accounts, counsel may be requested to represent two or more clients, such as multiple beneficiaries of an estate or co-estate trustees. In such cases, it is critical to ensure that a conflict of interest does not exist. When counsel first meets with potential multiple clients their respective interests may well be perfectly aligned and identical and it may not appear that there is a potential conflict of interest. Further, all consent to the representation of multiple parties.
In the case of multiple executors, in order to avoid a conflict of interest the controversial issues need to be addressed and discussed in detail. For instance, how will executor’s compensation be apportioned as between them? Is there a different relationship between each executor and the beneficiaries? Does one executor disagree with any actions taken by any of the other executors? Will their evidence be the same? Do the executors share the identical expectations of how the litigation should proceed as well as in respect of potential settlement? The potential disagreements can be discovered by exploring the issues up front.
If a conflict arises and the clients are not able to resolve a conflict, counsel may not be able to continue to act for any of them. Pursuant to the Rules of Professional Conduct, if a conflict exists or is likely to exist, clients need to be advised of the consequences of sharing counsel and consent after being informed of those consequences. In certain circumstances where clients wish and consent to having one lawyer represent them despite a conflict of interest, independent legal advice may be needed.
Joint retainer agreements or letters explaining the joint retainer relationship can set out the above issues so that clients and their lawyer are clear on their relationship and the passing of accounts.
There are several interesting continuing legal education (CLE) events coming up in September and October 2008 that I wanted to mention as summer draws to a close and we look to the fall.
One is an Ontario Bar Association (OBA) full day program on September 23, 2008 commencing at 9:00 a.m. entitled “Trusts, Trustees, Trusteeships III – All you need to know and more”. This is the third year that this program on Trusts is running. The use of Trusts and Trust drafting are said to be the primary focus of this year’s program.
Topics include: Valuation Issues and Discretionary Trusts, The Effect of Bankruptcy on Estate Planning, Testamentary Trust Planning, The Use of Trusts as a Will Substitute, Charitable Gifts made by a Trust, Trust Variations, Insurance Trusts and Declarations, Judicial Supervision of the Exercise of Trustee Discretionary Powers and Trust Drafting.
I am pleased to be speaking on the topic on Trust Variations together with Justin de Vries.
This program is being held at the OBA Conference Centre, 20 Toronto Street, 2nd Floor, Toronto. Information on this program can be found on the OBA’s website www.oba.org/.
The other program is Hull and Hull LLP’s next Breakfast Series on October 8, 2008. Hull & Hull LLP’s long running Breakfast Series continues to provide members of the bar with presentations on topics of importance to estate practitioners.
At the October 8th meeting, the following presentations will be made: “The Will to Decide - What to do When Capacity is in Question” by Natalia Angelini, "Dealing with the Body, and other Estate Issues that Arise Immediately Upon Death" by Paul Trudelle and “Recent Caselaw Developments” by Ian Hull.
This breakfast meeting is also being held at the OBA Conference Centre, 20 Toronto Street, 2nd Floor, Toronto. Breakfast begins at 8:15 a.m. with the Presentations starting at 8:30 a.m. A fee of $30.00 ($28.30 + $1.70 GST) is payable to Hull & Hull LLP upon registration by cheque, VISA or MasterCard. Materials are included.
A CD or Cassette Tape recording of the Breakfast Seminar will be available at a fee of $20.00 ($18.96 + $1.14 GST)
To register for the Hull & Hull LLP Breakfast Series, please contact Diane Labao at (416) 369-1140 (press 0) or by email to dlabao@hullandhull.com.
This week on Hull on Estates, Ian and Suzana discuss developments in will changes. They reference cases from Key Developments in Estates and Trusts Law in Ontario ed. 2008.
This week on Hull on Estate and Succession Planning, Ian and Suzana talk about accounting concepts and definitions after receiving requests from listeners to outline a more general framework for estate administration.
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.
Suzana Popovic-Montag: Hi, and welcome to Hull on Estate and Succession Planning. You’re listening to Episode #121 of our podcast on July 15th, 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 today?
Ian Hull: I’m great. Just want to remind everyone to please feel free to give us a call on our call-in line, 206-457-1985.
Suzana Popovic-Montag: And the number of course, is also in our show notes along with our e-mail address which is hullandhull@gmail.com. And of course you can visit our blog at estatelaw.hullandhull.com as well.
Ian Hull: So we’ve been having some great responses from our feedback line, both by the phone and by the e-mail, and we try to answer as many, well we always answer every single one of the inquiries, it’s just a question of how fast we get to it. This week I just wanted to start off with a response to a general inquiry we got on the e-mail about the whole series that we’ve been doing on the accounts. The comment that was made is, is that we are going through what are technical legal issues and they weren’t complaining in the e-mail but they wanted us to maybe recap a little bit in terms of the general framework of estate accounts, and in particular, maybe drill down on some of the core concepts and definitions, more from a definitional standpoint. So, as we started off in our podcasts in this little mini-series, we reminded everyone to first go to the Will or the trust itself. That’s an important starting point.
Suzana Popovic-Montag: And then you want to also of course, check whether there are any Court Orders that have been made, somehow interpreting either the Will or the trust documents so that it may mean something a little different than the black and white that’s actually contained in the document itself.
Ian Hull: And then backing down, of course, drilling down on the main documents and that is if there are prior accounts in the past or prior judgments.
Suzana Popovic-Montag: And then you’re going to look at starting with an original list of the assets that comprise the trust and how they were actually broken down in terms of 1iquidity and the nature of the assets that are in there.
Ian Hull: So the best typical page we see in a formal pass of accounts are the summary pages itself and that’s an important document within the document itself, but the next core listings are what are typically known as the capital receipts.
Suzana Popovic-Montag: And that of course, is followed by the capital disbursements.
Ian Hull: And again, we’re focusing on definitions today, and receipts, of course generally, are both capital, whether it’s both capital and income beneficiaries, you’re going to see capital receipts and disbursements. And with respect to that you’re going to see revenue receipts and disbursements in terms of a format of the accounts. But a capital receipt…
Suzana Popovic-Montag: A capital receipt itself will include all of the monies that have been realized on the realization of original assets in the trust or the Will and the profits on the sale of any investments that have been made by the executors or trustees.
Ian Hull: Now, with regard to staying with definitions and receipts, we turn to, of course, the concept of revenue receipts.
Suzana Popovic-Montag: And just to be clear, then Ian, that’s the distinction between a capital receipt when there’s both a capital and income beneficiaries in a trust and that’s really the only situation where a trustee or an executor has to break that down, otherwise we will just see receipts and disbursements.
Ian Hull: And so the revenue receipt itself, it’s really just a statement of revenue, money coming in and includes income that’s been received on the original assets, on investments that have been made by the executors. And these type of receipts are generally interest and dividends and the entries usually need to contain sufficient information so you can find out where the receipt comes from, what asset it has been generated from, whether it’s capital or whether it’s from the investment account.
The next thing that we talk about is, of course, we’ve talked about the general assets that are there, that’s like the inventory so to speak. Then we’ve talked about the capital receipts. Then we’ve talked about revenue receipts. The other thing, of course, is what goes out, and that’s disbursements.
Suzana Popovic-Montag: And the disbursement account should typically show to whom the money was paid out and on what account it was paid, with enough detail in there to make the item self-explanatory and, of course, indicate the amount that was ultimately paid.
Ian Hull: So all vouchers are typically numbered and so when you see formal accounts, you’ll see a numbering system so every single entry is actually numbered itself.
Suzana Popovic-Montag: And then in terms of the definition for the capital disbursement account, that’s a statement of all the disbursements that have been made including the payment of debts or funeral expenses, legacies that are provided for in the Will or the trust, and expenses that are related to things like appraisals and valuations for those assets, as well as solicitor’s fees and other disbursements that relate to the actual initial administration of the estate.
Ian Hull: So in terms of the out and we’ve talked about the in and part of the out, the other part of the out is, of course, revenue disbursements. And that is the statement of the income where money goes out, reflecting payments out of income such as income tax, that’s an easy example. Or taxes payable on capital gains on the date of death when you file your terminal return, that’s typically a central tax that is paid and dealt with. And in our last podcast, of course, we talked about the investment account itself and the form of it.
Alright, now we’ve wanted to sort of go through this analysis and this sort of definitional approach today because we are coming to, nearing the end of our discussions on how we are to account as executors. And one of the fundamental things that we’ve talked about throughout is an important question and that is, do the accounts balance?
Suzana Popovic-Montag: And when you say that, Ian, I guess you’re suggesting or questioning whether the total of the capital in the revenue receipts, less the total of all the capital in the revenue disbursements will actually equal the investments on hand and the balance in the bank account. And that’s the formula to make sure that the accounts do, in fact, balance.
Ian Hull: I’m a bit mathematically challenged, let’s break that down just one more time. So we take, to make sure (a) we need the accounts to balance, as best we can. That’s the first thing a judge looks to when they pass accounts, and actually beneficiaries do. So if I’m trying to balance the account, I take the total of what we’ve called the capital, that’s a total of what came in, and take all of the capital receipts plus all of the revenue receipts. And then what do I do? So I’ve got those two items added up.
Suzana Popovic-Montag: And again, if you don’t have a distinction between income and capital beneficiaries, if you have an outright distribution, then you’re really just looking at the receipts. So capital receipts and revenue receipts, less the total of capital and revenue disbursements, so everything that’s come in, minus everything that’s come out, should equal what you have invested on hand, together with the balance in the bank account.
Ian Hull: Alright, so that is really, I mean, we can’t overemphasize the importance of that because really the minimum expectation of the parties is to do that.
Suzana Popovic-Montag: And that, I guess, then takes us to the actual reason that most trustees or executors will in fact prepare formal accounts in addition to, of course, getting the Court’s stamp of approval, and that is the heading of compensation.
Ian Hull: And that’s really, I guess that’s the second last thing we want to talk about in this series is compensation. We’re going to talk about and continue to talk about compensation throughout our various podcasts, because it is such a central part of, there’s the obligation to account and there is the reality that people want to get paid to account. So, but when we’re looking at accounts, let’s talk a little bit about what we’re looking for in the context of compensation.
Suzana Popovic-Montag: Well the easiest starting point, of course, is to compare the totals in the accounts to the figures on the statement of compensation. And what we mean by that is, because we’ve talked about on previous podcasts the fact that there is a sort of rule of thumb in terms of an entitlement to compensation based on the value of the estate. And when you do the calculation, you want to apply the right percentages to the right total amounts in order to break down the compensation and then be able to justify it at the end of the day.
Ian Hull: Alright, so just in general terms, we’ve talked about this in the past, but in general terms, you are expected to be paid approximately 5% for your hard work throughout the administration of the estate. And how is that generally broken down?
Suzana Popovic-Montag: In terms of the big picture, Ian, it’s 2½ % on all of the assets that have come into the estate and then 2½% on all of the assets that are paid out of the estate.
Ian Hull: Alright. And that figure itself, the actual percentage figure, is that something that’s fixed or how do I work with that number?
Suzana Popovic-Montag: It really is just a rule of thumb and the cases will indicate as much. And so when you’re looking at accounts, and you’re sort of sitting back on the other side, from the beneficiary’s perspective and wanting to ensure that the trustee is entitled to the amount that they’re claiming, or want to submit that they’re not entitled to as much, you’re going to make the arguments that you need to, to suggest that reduced percentages should apply. And we can discuss some of those situations where we might want to say that less than perhaps 2½ % is what the trustee is entitled to.
Ian Hull: Alright, well I think we really need to talk a little bit about, we now have the general rule. And as with law and life, every rule is made to be broken. So I think in our next podcast, we should spend some time just talking about what will typically be looked at in terms of deductions from compensation, the changes to the general rule, whether up or down. And most of the time it’s down but we can also talk about some of the developments in respect of the compensation being increased up. So why don’t we save that for our next podcast?
Suzana Popovic-Montag: Okay, Ian, that sounds good. Just a reminder of our call-in number to anyone who’d like to call in, 206-457-1985.
Ian Hull: And please keep the e-mails coming and go to our webpage at hullandhull.com and drill through all of the various source documents we have. We have a ton of work that we’ve done and put on the web for passing accounts materials, but feel free to e-mail us at hullandhull@gmail.com.
Suzana Popovic-Montag: Thanks very much, 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.
Today’s blog is the third in my series this week on cases in the post Cummings v. Cummings era.
Today’s case is Simpson v. Leardi, [2005] O.J. No. 4282 (Ont. S.C.J.).
In Simpson, the deceased had left a substantial estate. The plaintiff had brought an Application pursuant to the Succession Law Reform Act seeking support in the amount of $3,750 per month. The plaintiff was already receiving $1,000 per month pursuant to the deceased’s Will, leaving an alleged deficiency of $2,750 per month. The Court ordered that the Application be converted to an action and made an order awarding the plaintiff $2,750 a month in interim support.
The parties were subsequently in agreement that the plaintiff’s personal financial circumstances had improved since the interim order. The estate of the deceased was worth $10 million and the plaintiff’s assets were worth approximately $3 million.
The defendants, the estate trustees of the estate of the deceased, then brought a motion seeking the termination of the interim order for the support of the plaintiff.
The plaintiff cited Cummings as support for her position that when the moral duty of the deceased to her is taken into account, the plaintiff should receive her fair share of the deceased’s wealth. The plaintiff conceded that based on a “needs based” analysis, she would not likely obtain a support order. The plaintiff contended, however, that the interim order should be maintained.
The Judge terminated the interim support, declining to accept the plaintiff’s argument that Cummings allows a court to take into account the respective wealth of the parties and reapportion that wealth in a “fair” manner.
The judge noted that it was important that after the parties’ positions are put forward at trial, a judge may well determine that the plaintiff is entitled to more support than the $1,000 stipulated in the deceased’s Will. The plaintiff had not established, however, at the time of the motion, a continued need for interim support.
This week on Hull on Estate and Succession Planning, Ian and Suzana talk about the importance of keeping good records in order to account for your conduct financially.
Suzana Popovic-Montag: Hi, and welcome to Hull on Estate and Succession Planning. You’re listening to Episode #114 of our podcast on Tuesday, May 27th, 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 today?
Ian Hull: Fantastic.
Suzana Popovic-Montag: That’s good.
Ian Hull: So just to remind everyone to make sure that if you have any comments, to call in and, of course, the number is 206-457-1985.
Suzana Popovic-Montag: And that number, of course, is in our show notes along with our e-mail address which is hullandhull@gmail.com.
Ian Hull: Okay, Suzana, why don’t we come back to some of the discussion we were having in our last podcast because of the importance of the accounting. And we sort of left off in our last podcast talking about one of the big roles that we have, when once we become an executor. And probably, arguably, the most important role of that is, to keep good records and to account financially for your conduct. I thought what we might do today is talk a little bit about, maybe, I don’t know if we’ll call it a checklist, but just sort of things to watch for when we’re going through this process, because these items here that we want to talk about today are things that the Court will typically look to when, ultimately, if you do get audited by a judge, what the expectations are of you as a fiduciary and as an executor.
Suzana Popovic-Montag: And just a reminder, of course, that you don’t necessarily have to prepare Court format accounts. There are situations when an informal accounting of all of the ins and outs of the estate, so to speak, is prepared and that, similarly, will be reviewed by beneficiaries and you want to, as you say, sort of keep things in mind or what to look for in either of those two situations.
Ian Hull: That’s true and I think some of these comments, most of these comments anyway, reflect what you need to watch out for, whether you formally pass your accounts or whether you’re just keeping them informally.
Suzana Popovic-Montag: And the first thing that I normally do, Ian, when I’m looking at a set of accounts that have been prepared by an executor or when I’m telling people to prepare accounts, is to actually read the entire Will and any of the Codicils that are associated with it. So that you know as a starting point what the executor is supposed to do, who they’re supposed to pay out monies to and how they’re supposed to ultimately administer the estate.
Ian Hull: That is such a crucial first step and the comments about sort of what we need to look to when we’re going to be audited, either informally or formally by the Court, also reflect the expectations in large part for those who are appointed guardians or who are appointed attorneys under Powers of Attorney. So it’s crucial to look at the Power of Attorney document, for example. Or if we have been appointed under a Court Order as a guardian, look at, what we call in Ontario, the Management Plan or what was the scheme of expectation as to how money was going to be spent. If you skip over this stage, you can miss important factors. And one example would be, if you haven’t read the Will carefully, you may not realize that it’s a trust Will or it is a straight outright distribution Will. And that would dramatically affect how you’re supposed to keep your records, for example.
Suzana Popovic-Montag: And, of course, if you’re looking at actual responsibilities of an executor, normally you’ll look to the Will to find what those responsibilities are. For instance, investment powers, if there is in fact, this trust Will situation, you want to know what kind of investments the executor is authorized to invest in, or what kind of powers and duties they have in those responsibilities in those situations.
Ian Hull: So another preliminary step to consider in the course of preparing for this ultimate look-over-your-shoulder is to make sure you’ve looked at any other prior Orders of the Court or any judgments of the Court, if there’s been a prior passing of accounts by a Court. It’s crucial to look at that judgment because that gives you your starting balance for the next set of accounts, so to speak. But there may be other Court Orders that have said that, for example, there may have been an interpretation of the Will or the trust that’s involved, which tells the Court how, tells the parties as well, how to administer the estate.
I was involved in a case years ago where I had a client come in and say, “Geez, I need you to pass these accounts” and we had to go back about 40 years and approximately five years after the date of death of the deceased. So 35 years ago there was a Court Order that identified that the widow of the deceased got an Order for an extra payment under the Will. And that, of course, created a new trust in that example and it changed the whole accounting format. Now if we hadn’t drilled back and looked at that Court Order, we may have set up the accounts in the context of what we thought was the Will provisions. But there was a Court Order subsequent, under what we called the Dependant’s Relief Act in those days, and it changed the whole distribution of the assets of the estate. So we needed to make sure that we had all of the core documents in front of us before any mistakes may have been made in the context of preparing our accounts. And in that case, the accounts were just prepared informally, but we would have looked like we had real egg on our face if we hadn’t incorporated this dramatic change which was essentially creating a new trust. Notwithstanding the provisions of the Will, the Court said there is a new trust for the widow.
Suzana Popovic-Montag: That’s a great story, Ian, and it really does underscore the importance of cross-referencing all of the information in the situation to make sure that you’ve got the whole lay of the land, so to speak, when you’re doing these accounts.
Another thing to sort of cross-reference is this list of investments that estate trustees will have if there is, in fact, a trust in the Will. And you want to make sure that at the end of any earlier period, those balances are the same as the beginning balances for the next period, and that any unrealized assets that were on hand at the close of an earlier period are then the new beginning balances for the next period.
Ian Hull: And just, some of this stuff sounds a little bit daunting over the air, so to speak, because we don’t have visual representations to identify this. But we did do, Anne Werker of our office, did do with Jordan Atin, an excellent two-part series which we have on video format on our webpage, that shows you an example of audit accounts that are ready for Court passing. So you can see the unique format that’s involved. And it identifies things like the investment account, things like unrealized assets on hand and sometimes, a picture tells a thousand words. You can look at that and feel free to go to the webpage at hullandhull.com and look in the media links for that, so you can get some examples to see what we’re talking about with Court format accounts.
Okay, so one of the other sort of technical areas that we talk about in accounting for estates is the whole concept of receipts, both from a capital receipt standpoint and a revenue receipt standpoint. But why don’t we start with the original assets, cross-referencing it into the capital receipts because really, again, to simplify estate accounting, it is a bank book summary, a line by line date chronology summary of every financial transaction. So all that’s received comes in, all that’s dispersed comes out. It gets into another, more complicated layer of revenue receipts and revenue disbursements, which is essentially, a good illustration is just simply interest income on the capital of the estate that comes in and out. But let’s stay with the basic starting point, and that is, capital receipts at this point.
Suzana Popovic-Montag: And basically, what happens is that every asset of the estate is recorded as initially a capital receipt. And so it’s, as you say, this line by line bank book entry. Everything that comes into the estate is recorded at its value as of the date of death and then cross-referenced to this list of original assets, so that you can make sure that everything has been accounted for and has come into the estate.
Ian Hull: So, once we’ve created that, and what we do with estate accounting is actually we, line by line itemize it. But we also put a cross-reference number to it so that it’s easy to track them. So, for example, say there are ten assets of the estate, a couple of RRSP accounts, a couple of bank accounts, a cottage, that kind of thing, all of those line items, that’s one through ten, so we’ll itemize them as original receipts, capital receipts. But we’ll also put a number to them so that you can then track what happened to that receipt throughout the administration of the estate because you can always come back to what we call, in that case, Capital Receipt No. 3, for example. What happened with the RRSP account? Well, it’s not just line item 3 on page 16, it’s actually given itself a number. And again, if you look at our precedent on our webpage, you’ll see how important that can be because you end up putting in a lot of line entries because literally, every single transaction is set out in these format accounts.
Suzana Popovic-Montag: And by setting it up in this fashion then cross-referencing it to each of the transactions, it gives everyone an opportunity to see if the particular asset is suddenly being realized at a much higher or a lower value than its original date of death value. And that then leaves it open for an explanation as to why there is, in fact, this discrepancy.
Ian Hull: Alright. Before we wind up today’s podcast, we’ll just make a couple of comments about a unique capital receipt and that is, where you have real property. And with that, there are some preliminary steps you’ll want to take before you start putting the entry in, so to speak.
Suzana Popovic-Montag: And one of the first steps you’ll want to do is to actually obtain an appraisal of the value of that property as of the date of death, and then eventually, if there’s a delay in its sale, then possibly as at the time that you’re considering selling that asset as well.
Ian Hull: And finally, just make sure you’ve identified what encumbrances, if any, are on the real property. And that, too, needs to be identified in the accounts and how that encumbrance was dealt with.
So, although some of this stuff is a bit technical, we’re trying to simplify it as best we can. And we’re going to continue to work through this because this is, without a doubt, seen to be one of the more complex areas in estate administration. But, I can assure you, that in my experience and certainly Suzana’s, this is the one area that is a real hotbed of contentious problems. So the more we can learn about it now, the more we can avoid the problems later.
Suzana Popovic-Montag: Well, thanks very much, Ian. Just a quick reminder to our listeners, to please feel free to give us some feedback at 206-457-1985 or feel free to visit our blog at estatelaw.hullandhull.com.
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.
You know a trust has the potential to run off the rails when the beneficiary refers to the trustees as "The Three Musketeers".
After his untimely death in 2003, Dr. Robert Atkins' widow sold his business netting proceeds of some $420 million. In his will, the famous diet guru set up two trusts: (i) a spousal trust that would benefit his wife, holding 90% of his assets, and (ii) a research foundation which would get the remaining 10%.
Cue the sword clanging of the three musketeers: a self-described entrepreneur, an accountant, and a lawyer, who befriended Ms. Atkins and became the widow's closest advisors as well as trustees for the spousal trust (replacing the two trustees who had been appointed by Dr. Atkins). It is reported that Ms. Atkins subsequently agreed to pay each of them $1.2 million per year (excluding bonuses), signed them to 10-yr contracts, and allowed each of them to take out a $5 million life insurance policy on her life, naming themselves as beneficiaries.
Fast forward to a Wall Street Journal online report that a lawsuit had been filed by the Musketeers accusing Ms. Atkins of improperly firing them. Ms. Atkins and her new spouse asked for the trio to be removed as her trustees and further sought reimbursement of some of their fees. The relationship between the Musketeers and Ms. Atkins began to disintegrate in 2006 when Ms. Atkins met her new spouse to be, who himself then became increasingly involved in her finances. When the Musketeers balked at her new spouse's demands to encroach for an additional $100 million for Ms. Atkins (above and beyond her $15 million annual income), he started making noise about having them removed as trustees.
In the October 22, 2007 edition of the "Law Times", Bev Cline writes about the importance of family dynamics when considering an estate plan, and when dealing with estate disputes.
The article quotes Hull and Hull's own Jordan Atin: "A will is usually the last thing that a parent says to his or her children...". As such, the document "creates a definitive, lasting record of the relationship between parent and child and among a child and his or her siblings. That reason alone explains why estate disputes are so hotly contested".
Jordan Atin states that in addition to addressing the mechanics of the estate plan, solicitors also need to address their client’s family dynamics. Lawyers should consider with their clients the emotional effects of the will may that arise after the testator passes away.
In the article, Sender Tator, a solicitor with Schnurr Kirsh Stephens, notes that in the context of litigation, “emotion often gets in the way of legal or practical realities; your client is often looking for a certain result, which legally may not be feasible".
The interplay of family dynamics and human emotion is one factor that makes estate litigation so interesting. (It is also a factor that often makes the practice so frustrating!)
One of the functions of a solicitor in estate litigation is to consider the role of family dynamics, and to see that it is identified and addressed. In addition, the solicitor should strive to ensure that the legal or practical realities are not overlooked, and that passion alone does not drive the litigation.
Yesterday, I blogged on the case of Gubo Estate v. Cotroneo. There, the estate was granted judgment against the Defendant for the recovery of an alleged “gift” that the court determined was unsubstantiated, and therefore repayable.
Interestingly, the judgment was not for the full amount of the gift. The Defendant alleged that he had paid out approximately $22,500 on behalf of the deceased, and that this amounted to a debt in his favour. The Court accepted this, without much discussion, and reduced the amount repayable to the Estate by $22,500.
The Court heard from the Defendant that the deceased had made a gift of the funds to him, and that the Defendant had made various expenditures on behalf of the deceased. The Court did not accept that the transfer from the deceased to the Defendant was a gift. However, the flip side of this was that the expenditures by the Defendant for the deceased were not gifts, either: hence, the reduction of the judgment in favour of the Estate.
In dealing with the case of an alleged gift, counsel should always consider the bigger picture: if the gift fails, is there a basis for a counterclaim by the defendant for advances from the defendant to the deceased, or on the basis of quantum meruit?
In the recent case of Gubo Estate v. Cotroneo, the Court considered a claim on behalf of an estate for the recovery of funds advanced by the deceased to her boyfriend.
The deceased had sold her home and had given the proceeds of sale, being $65,000, to her boyfriend, and then moved into his home.
The Court found that there was insufficient evidence to establish that the advance was a gift.
As to a remedy, the Court heard evidence that the advance was likely for the purpose of defeating creditors of the deceased. As such, the Court declined to apply the doctrine of resulting trusts, applying a Court of Appeal statement to the effect that "evidence of an illegal scheme will not be received to support a resulting trust."
However, the Court found that it was not necessary to rely on the doctrine of resulting trusts. The Court found that it was able to make a monetary award, and granted judgment in favour of the deceased’s estate.
In advancing a claim on behalf of an estate, the imposition of a trust is not always necessary, and a monetary award will often be the most appropriate remedy.
In Hughes v Miller, the female plaintiff and the male defendant were never married but lived together in a spousal-type relationship for about 12 years. They originally lived on the defendant’s boat until 1993 before moving to an island. The agreement and expectation of the parties was that they would be equal owners of the island property. While the purchase money for the island property was put up by the plaintiff and her mother, the defendant’s contribution was to be in the way of material and expertise in building a permanent home on the property. However, the defendant only built a very basic cabin.
In 1995, the defendant inherited property from his aunt. The plaintiff helped pay property taxes on the inherited property. Furthermore, as the defendant became ill in 1999, he ultimately contributed less to the parties’ expenses.
The plaintiff sought a declaration of a constructive trust over the inherited property based on unjust enrichment. The plaintiff claimed she supported the defendant over the course of many years and that her financial contribution to the defendant enabled him, among other things, to pay taxes on the inherited property. Alternatively, she sought monetary compensation for the defendant’s enrichment.
The defining feature of the case is that the inherited property came to the defendant by way of an inheritance. As noted by the British Columbia Court of Appeal, the case was different from the majority of cases where the parties lived together and jointly built up assets over many years. If, in fact, the plaintiff was entitled to any trust claim to the inherited property, such a claim would derive from what she did after the defendant inherited it.
However, the court found that it would not be appropriate to award the plaintiff a constructive trust remedy over the inherited property, having regard to her relatively sparse direct contributions to maintaining or improving the property after the defendant inherited it. A constructive trust is the appropriate remedy for unjust enrichment only where a monetary award is insufficient and where there has been a direct contribution to the property by the party seeking such a remedy.
According to the court, spouse-like care and assistance, some personal and some financial, entitled the plaintiff to a monetary award based on unjust enrichment. In the circumstances, the court felt that an award to the plaintiff of one-third of the value of the property accruing to the defendant was fair.
The Prince Edward Island court recently entertained an Application for directions by the trustees of the estate of Owen Connolly, reported at Connolly Estate (Re) [2006] P.E.I.J. No. 61.
Mr. Connolly died in 1887. He left a will which established a trust “for the purpose of educating or assisting to educate poor children resident in Prince Edward Island who are members of the Roman Catholic Church and who are either Irish or the sons of Irish farmers...".
The trust was said to have paid out over $1 million in bursaries since inception, and had a reserved capital of approximately $1 million.
The trustees stated that with the passage of time, the question of eligibility had become more difficult. The trustees sought direction from the court as to whether eligibility was open only to males, and whether eligibility was open to those who had “significant” Irish ancestry, being at least 50%.
It was noted that the administration of the trust was not affected by the discrimination provisions of the relevant human rights legislation.
The court had little difficulty in concluding that the trust did not benefit males only.
A more difficult question is what was meant by the term "Irish". The court reviewed the history of Ireland and its society and noted that 19th century Ireland was not the product of a pure strain of "Irish", but was a melding of a variety of ethnic strains of immigrants who arrived at different times through history. The court traced the history of Ireland back to 3000 B.C. The court concluded that when he referred to a person being “Irish”, the testator intended to refer to either a person who had emigrated from Ireland, or to a person who was a descendent of a person who had emigrated from Ireland. By making reference to "sons of Irish fathers", the court concluded that the testator had visualized the Irish blending into the larger community in PEI, and thus, felt that having 50% Irish blood was reasonable and sufficient.
The case is an interesting read, as it not only reviews Irish history, but it sets out in some detail the life of the testator in the mid-1800s, including a detailed report of his death in December, 1887.
The Ontario Supreme Court of Justice recently ruled on the issue of whether a solicitor can assert a solicitor’s lien over an original will.
In Szabo Estate v. Adelson(2007), CanLII 4588, the solicitor acted as estate solicitor, having been retained by the estate trustee named in the will. He rendered an account for legal services in the amount of $3,230.79. This account was not paid, and the solicitor asserted a solicitor’s lien over the documents in his file, including the original will.
Interestingly, the solicitor offered to release the will if the estate trustee agreed to a charge against the estate. The estate trustee would not agree.
The estate trustee brought an Application under s. 9 of the Estates Act for the production of the original will. In considering the Application, the court noted the basic proposition that where a client discharges a solicitor without cause, the solicitor may exercise a lien for his or her fees over the documents in the solicitor’s possession, and may retain them until paid.
The estate trustee relied upon an article and an excerpt from a text that stated that a solicitor’s lien did not extend to a will. The court found that the article did not cite any authority for that proposition, and that the case referred to in the text, an 1823 decision, did not support the proposition, either.
This illustrates that one should not blindly rely on articles and texts as setting out black letter law (unless, of course, one is relying on Hull and Hull, Probate Practice).
The court concluded that a solicitor can exercise a lien over a will, just as he or she could over any other important document.
However, the court can and will intervene in order to prevent an injustice to a client resulting from the exercise of the lien. In the case under consideration, the court ordered the solicitor to deliver up the will IF AND WHEN the estate trustee agreed to a charge against the estate in the amount of the solicitor’s account.
Leona Helmsley’s estate continues to raise eyebrows, and serves as an illustration of what not to do when estate planning.
Following her death, it was revealed that she set up a $12m US trust to care for her dog, Trouble.
Last week, it was reported that the named trustee of the trust, her 80 year old brother (who received over $15m US himself from the estate) does not want to care for Trouble. It is yet to be seen whether the alternate trustee, Leona’s grandson, will take on the responsibility.
In addition, Leona’s will directed that Trouble, following his death, be buried with her at the family mausoleum. However, state laws forbid animal remains from being interred at human graveyards.
To make matters worse, it appears that Trouble bit a housekeeper, and the housekeeper now wants a piece of Trouble’s money.
The present circumstances illustrate the need for open discussion of estate plans. Trustees should be consulted in order to ensure that they actually will agree to take on the role of trustee; special requests should be explored to ensure that they are feasible.
We are all too aware of the technology that surrounds us. Blackberries, pagers, cell phones, and fax machines cloak us in a patina of technology. We cannot escape from technology and, in fact, we are now “on” 24/7. It is somewhat ironic, and perhaps tragic, that the promise of technology was to free us from the drudgery of work. However, any professional or businessperson will tell you that technology has only made work life more demanding and deadlines more immediate. There is no escaping the office.
However, heading into the weekend, it is worth considering that there is a rising tide, some might even call it a revolution, that the proletariat (yes, that now includes professional and businesspeople thanks to technology) need to down their tools. In other words, Blackberries need to be turned off, cell phones muted, and faxes left waiting in the in-tray until Monday morning or after a well-deserved holiday. Psychiatrists and psychologists will tell us that leisure and recreation is an important way to recharge our batteries. The truism “all work and no play make Jack [or Jill] a dull boy [or girl]” seems even more relevant today. Perhaps we need to look to our European counterparts, who take longer holidays and seem more willing to stop and smell the espresso.
In my view, a well-rounded and high functioning lawyer should take the time to recharge his/her batteries as well as broaden his/her experience by travelling. A lawyer should also take the time to read the newspaper or the latest magazine, or, in fact, a good book. Living, and not merely working, provides perspective, context, and helps develop judgment – traits that any good lawyer needs. As the calls for technology to be “turned off” or, at least, muted grow, it will be interesting to see how society ultimately responds.
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.
Suzana Popovic-Montag: Hi and welcome to Hull on Estates. You’re listening to Episode 71 of our podcast on Tuesday, August 7th ,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.
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Unfortunately, the following quote applies to many of the cases that we deal with on a daily basis:
“To say that brother and sister do not get along in this case is an understatement. There is plenty of mistrust, suspicion and bitterness to go around. The applicant blames her brother for high-handed and unilateral conduct. He claims he has acted improperly. On the other hand, [brother] blames his sister for being non-communicative and hard to get along with. He was compelled to take the steps that he did because his sister which not deal with him.”
The quote is from Hill v. McLoughlin, 2007 CanLII 1334 (Ont. S.C.). There, brother and sister were co-estate trustees and residual beneficiaries of their mother’s estate. As a result of the above-noted mistrust, sister brought an application to have brother removed as an estate trustee.
The court found that while there was friction and hostility between brother and sister which hindered the administration of the estate, it was not satisfied that brother committed a breach of trust as alleged, or was in a conflict of interest.
The court stated that where the deceased has expressly appointed trustees, a court should be loath to interfere with the testator’s expressed intention except on the clearest of evidence that there was no other course to follow. The expressed wishes of the testator should be respected and not interfered with lightly. It is only where a court determines that the welfare of the beneficiaries requires removal and replacement of trustees that the court should undertake such action. It is not any mistake or neglect of duty on the part of the trustees which would lead to their removal. It must be shown that the non-removal of the trustee will likely prevent the trust from being properly executed.
While the court did not order removal of the brother, it did not condone his actions. The court required that the brother undertake certain steps, such as provide specific information to the sister.
On the issue of costs, judge ordered that each party should bear their own costs.
It is often hard for siblings or others to get along and cooperate in the administration of an estate. Further, actions taken by trustees, out of spite or otherwise, can serve to exacerbate the mistrust that already exists. Knowing that the courts will not automatically step in and remove an estate trustee in the circumstances should encourage the parties to an estate to act reasonably and simply get the job done.
The world wide web offers a wealth of information: some useful; some not so. Recently, I came across www.stealanestate.com. The website puffs “Get Rich! On Other People’s Money”, “Displace Rightful Heirs Legally!” and “Never Have to Work Again!”
The web page offers a three step program:
Step One: Assess Opportunities & Establish Yourself
Step Two: Discredit and Displace the Heirs
Step Three: Savour Your Triumph
Tips incude:
• Identify elderly affluent people who are alone;
• Use alcohol;
• Create reasons to see them often;
• Always take their side and fault anyone who disagrees with them;
• Get into a position of trust and authority;
• Act like the perfect son or daughter;
• Keep the rightful heirs ignorant of your relationship;
• Sever all communications between the victim and their heirs;
• Create conflict – lie to the victim about the heirs and their dishonesty and misdeeds.
The site contains many more “tips”.
At first blush, the site is shocking and disturbing. However, deeper into the site there is an explanation. The site claims be operated by individuals “currently in litigation fighting years of undue influence for our mother’s estate”. The tactics and tips set out in the site were apparently used against them. The page is “meant to shock you into action and attention.”
The site should be read as a cautionary tale: a shopping list of things to look out for: both for ourselves and for our loved ones, rather than as a “how-to” list on elder abuse.
In Thursday’s Globe and Mail, Margaret Wente wrote about “Geezers in Paradise”, and observed that tomorrow’s seniors will be able to enjoy “the most delightful old age of any generation the world has ever known”. Seniors are the fastest growing group in Canada, and by 2017, seniors will outnumber those under 15.
Ms. Wente sees a future where “mature lifestyle residences” replace schools, nannies are imported to care for your mom rather than for your kids, and the most popular diapers will be size XXL. Industries will sprout up to service this aging population, medicines will improve, and the political clout of this older group will ensure their comfort and entitlements.
This optimistic future is contrasted by reports earlier last week that one in three Canadians worry about outliving their savings (Toronto Star, July 16, 2007). The report found that many older Canadians did not foresee such a rosy retirement. 33% of respondents over 60 worked either part-time or full-time, and 19% indicated that their financial situation was worse or much worse than 5 years ago.
The vision of the baby boomer generation, on the cusp of becoming senior citizens, being the most affluent group ever is not universal. “There’s going to be a group of baby boomers for whom all of this image of affluence and consumption isn’t reality,” said professor Doug Owram of the University of British Columbia.
Rich or poor, the articles both highlight the importance of planning for our later years.
Mr. Bernard Bayer has won the right to receive a salary from his former employer until March 1, 2012. Unfortunately, Bernard died on April 23, 2005.
In this most unusual case, Bernard's estate will be entitled to receive payment equal to Bernard’s salary until 2012, notwithstanding Bernard's death.
The case turns on the peculiar wording of Bernard's employment agreement with his employer, the Blue Button Club. Pursuant to this agreement, which was entered into on March 1, 2002, Bernard was employed as the Executive Manager of the Club. The agreement had a 10 year term. The agreement described Bernard's duties at the Club. It provided that he was to be paid at least $60,000 per year.
An unusual provision of the employment agreement provided that the Club was to maintain insurance on the life of Bernard, naming the Club as beneficiary, so that the Club could comply with the termination provisions of the agreement. The termination provisions provided that the employment agreement could be terminated in the event that Bernard failed repeatedly and demonstrably to perform his duties, and failed to remedy this problem after receiving reasonable notice; for just cause; or upon his death, in which case, the Club was to collect the insurance proceeds and pay these to Bernard's estate. Apparently, the Club did not take out such a policy of insurance.
In resisting the claim by Bernard’s estate, the Club argued that, prior to his death, Bernard failed to fill his duties. The court rejected this submission, holding that the Club did not provide the required written warning to Bernard.
The Club also submitted that the agreement was not enforceable, and that neither of the parties expected the agreement to be enforceable. The court easily rejected this submission.
As the agreement clearly contemplated Bernard’s death, it was not frustrated by his death.
The court found that Bernard's estate was entitled to the payments due until the end of the agreement. These damages totalled $410,000.
In this case, the employment agreement was drafted by or on behalf of the Club. The court held the Club to its agreement, notwithstanding its unusual provisions, or the fact that it produced, at least at first blush, an unusual result.
From 1993 to 1996, Daniel Assh, a Pensions Advocate with the Bureau of Pensions Advocates, Veterans Affairs Canada assisted Maria Orn, a veteran and the widow of a veteran in obtaining her pension benefits.
In 2001, Maria prepared her will. In it, she left specific legacies totalling more than $100,000, and divided the residue of her estate amongst various named persons and a charity. Three weeks later, she died.
One of the specific legacies was a $5,000 bequest to Daniel.
Daniel told his superiors about the bequest, and that he intended to accept it as it could not give rise to a conflict of interest. They told him to "hold off" on accepting the bequest until the matter was cleared through the “appropriate department channels”.
Daniel argued that because he did not know of the bequest in advance, and because there could not be the expectation of further services, and no possibility that Daniel could provide special assistance to Maria or her family, there was no conflict. Daniel submitted that he had stopped providing services to Maria long before her death. It was agreed that Daniel had in no way attempted to influence Maria into making the gift.
Did he get to keep the bequest?
No. Veterans Affairs determined that accepting the gift would be in contravention of the federal Conflict of Interest Code.
Daniel grieved the decision through two levels of the internal grievance process, and then applied for judicial review when the decision was upheld at both levels. Judicial review was allowed, and Daniel was allowed to keep the bequest. However, the decision was appealed to the Federal Court of Appeal (“FCA”).
The FCA held that the bequest could give rise to a perception of conflict. The question was whether a reasonable person would think that there was a realistic possibility that acceptance of the legacy could influence the employee’s future performance of official duties. The FCA noted that a pensions advocate is in a position