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Listen to Determining Value

This week on Hull and Estate and Succession Planning, Ian and Suzana talk about values and appraisals. They specifically look at some of the issues related to assigning value to assets such as jewellery, automobiles, antiques and artwork.

Comments? Send us an email at hullandhull@gmail.com, leave us a message on our blog or give us a call at 206-457-1985.

Determining Value - Hull on Estate and Succession Planning Podcast #101

Posted on February 26^th, 2008 by Hull & Hull LLP

 

Suzana Popovic-Montag:  Hi, and welcome to Hull on Estate and Succession Planning.  You’re listening to Episode #101 of our podcast on Tuesday, February 26^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.

 

Ian Hull: Hi Suzana.

 

Suzana Popovic-Montag: Hi there Ian. How are you today?

 

Ian Hull: I’m just great, thanks. I just want to remind anyone who’s interested that we have set up our comment line: 206-457-1985. That’s 206-457-1985.

 

Suzana Popovic-Montag: And we’ve also got our gmail address for anyone who’d like to send a comment by way of gmail. And that is: hullandhull@gmail.com.

 

Ian Hull: Terrific. Well, we have the pleasure of making this one a perfect podcast because we’re at 101 and we’re re-recording. For some reason, our last one didn’t catch.

 

Suzana Popovic-Montag: And that’s a rare occurrence, I can assure you.  Re-recording with Ian Hull.

 

Ian Hull: So we’ll get it even more perfect this time. But again, great fun being able to leap over the 100 podcast mark and really enjoy doing these podcasts with you. Had a good topic last week which I butchered, no doubt, without you, but we talked about valuation issues. And I tried to focus on the real estate issues in particular. So for today I thought it might be useful to take it that next step and talk about some other issues relating to valuation because my theory is this is actually the cornerstone of any administration and can be the source of many, many problems in a contested environment.

 

Suzana Popovic-Montag: And I think in terms of starting with the different types of appraisals, we’ll start with my favourite, and that is, jewellery appraisals.

 

Ian Hull: Yes. And those of you who don’t know, Suzana is an expert in jewellery. If you do see her in person, you’ll notice that instantly.

 

Suzana Popovic-Montag: I don’t know anything about appraisals though.

 

Ian Hull: But she knows value. So what about the jewellery appraisals? There seem to be, sort of two aspects of this issue.

 

Suzana Popovic-Montag: I think what you’re referring to there, Ian, is the fact that the appraisal in terms of the ultimate value of that bequest to whomever it’s ultimately left to at the end of the day.  And then the second side of that would be, of course, the value that’s added to certain jewellery owned by the deceased on the date of death for the purposes of probate tax.

 

Ian Hull: Absolutely. And I was also thinking of a third, now that you mention it. So I have now three ideas, and the third is, is that the special nature of the asset itself. Like real estate, where you might have a cottage which has got tremendous personal and emotional issues tied to it, real estate is only one aspect of administration that does that, of course.  And another is easily identifiable, certainly in our experience, is jewellery. A piece of jewellery brings with it perhaps the source of great frustration in litigation unfortunately.

 

Suzana Popovic-Montag: And that’s really because of the sentimental value that can be attributed to a piece of jewellery that may not have a very large financial value to it at the end of the day, but in terms of the sentiment, the emotion behind it can really be a flashpoint during the course of any particular estate administration.

 

Ian Hull: So like a real estate appraisal, it seems to me worthwhile to really address where your source of the appraisal is coming from. Are you using a reputable jeweller? Or are you using a pawn shop sort of analysis of what it’s worth. And, of course, that brings about the important question as to does it really matter? Does the valuation really matter or is it just a question of allocating this piece to one person and that piece to another person?

 

Suzana Popovic-Montag: I think just to follow up on that thought, Ian, also many times people will insure jewellery for the purposes of having, you know, the requisite or the appropriate amount of insurance on something. And those appraisals, as we know, tend to be a little bit higher than perhaps the actual value of the piece of jewellery. And so that’s something else that we might want to keep in mind if, as you say, the value actually does matter at the end of the day.

 

Ian Hull: That’s a good point as well. Really, from my perspective, the inventory of the jewellery itself is so crucial.  And any early steps that can be taken to ensure that you’ve got your assets under control in any estate administration are important, but jewellery can be something that if you lose a ring here or there, can be a big problem for an executor.

 

Suzana Popovic-Montag: And I know you’ve mentioned in previous podcasts the possibility of videotaping certain things within the home of the deceased and I think that jewellery is one of those key things that you may want to consider actually having pictures of or videotaping because it can be really difficult to identify a gold ring amongst ten of them; some with diamonds, some without, some with other stones. Not that I’m speaking from experience …

 

Ian Hull: You’re hearing this from the expert, let me tell you. Just looking now how many gold rings she has on. They all look the same to me.

 

Suzana Popovic-Montag: That’s a man for you.

 

Ian Hull: Alright, so the jewellery issue is one.  What’s another issue on the appraisal side that we want to think about?

 

Suzana Popovic-Montag: I would suggest that the automobile appraisals at the end of the day are also quite important.

 

Ian Hull: That’s for sure, because the automobile itself needs to be dealt with and sometimes it can be a very valuable asset of an estate. Or other cases, it really can be a pain in the neck. I noticed recently an advertisement for a car dealership that says, “We’ll take any car, you don’t have to come buy a car from us, we’ll buy any of your cars off your back”, so to speak, and get that off your list.  And it even says for estates to feel free to call the dealership because we’ll buy your car. And I thought that was a great hook because really, from a standpoint of an executor in most estate administrations, dealing with the car is a bit of a pain in the neck because the value is often, by the time the person has passed away, a modest amount.

 

Suzana Popovic-Montag: And also, by the time it’s actually administered because there’s always that little bit of a delay from the time of death to the time assets are actually transferred, and of course, we know that cars don’t necessarily, unless they’re collector cars, appreciate over time. Most will depreciate.

 

Ian Hull: Yeah and that’s right. And this is really one of those assets that is a not… this is like a wasting asset, as opposed to some, you know, for example, if the real estate market’s going up or jewellery becomes more valuable over time, that could be either way on jewellery, but it’s important to really get it and manage it quickly, make sure that the car is insured instantly so if someone does steal it out of the driveway and go for a joyride or something like that, there’s no liability to the estate trustee in that regard. I had an interesting case once where the car was left in the driveway for a year and a half. The oil had leaked out onto a gravel driveway and it created an environmental problem because the oil and gas had been leaking out of the car in a situation where there was no environmental problem. Now it wasn’t huge, they were able to clean it up.  But when they went to sell the house, they had an additional liability that’s just, as I say, it’s something that shouldn’t be taken too lightly and it’s easily administered. So the Courts are not going to be very sympathetic to an executor who hasn’t moved quickly to deal with an automobile because it is so readily marketable and so easily dealt with.

 

Suzana Popovic-Montag: So Ian, any other things that you think would be important to value at the date of death?

 

Ian Hull: Well, I think the other two that come to mind anyway are antiques or more globally, just artwork as such.

 

Suzana Popovic-Montag: And do you find that many estates have either antiques or artworks just as a general rule?

 

Ian Hull: Well it’s hard to tell. And you’re right, I mean, you don’t see a lot of antiques or artwork that come into an estate of great value. But it falls into the category of jewellery which may become much more important to the individuals because this corner table always sat by mom or this was where dad always smoked his cigars and you had great discussions with or something like that. There’s some emotional value to it as well as the antique value to it. So yeah, I think it’s one of those things that you mentioned earlier, videotape your assets, go through the house, go through the place wherever the assets are…lock it down so that you know where things are. If something goes missing, a painting goes off the wall, I mean it may not be a Van Gogh and you may not have lost a lot in the process of one of the beneficiaries coming over to the house to clean it up and then take the painting with them. But you might have created an emotional issue that you’re underestimating how the other family members will react to and you’ve created new problems for yourself.  Because the obligation as a trustee is from the moment of death, you are charged with control and custody of the assets of the estate. And sometimes you’ll see cases where executors are told by, for example, a trust company or someone will go right in and change the locks quickly to a house. Well it seems to be to a lot of people, people will think, “Oh my gosh, that’s terrible. It seems very draconian, very over the top”. But it really isn’t in most cases because of this onerous obligation to account.

 

Suzana Popovic-Montag: I think that’s a really good point and just sort of thinking of other assets that might be flashpoints. You know there’s often times like silverware or, you know, other kinds of things that were owned by the deceased that to a third party trustee may have almost no value at all.  But the sentimental value to certain family members can really not, you know, we can’t underestimate that and so the suggestion of taking some kind of picture or video of it seems to be probably the best way to deal with that.

 

Ian Hull: So just to recap the valuations issue, there’s two main points as far as it seems that we’ve been trying to focus on in the last two podcasts. One is, of course ,what level of valuation do you want undertaken? Do you want a belt and suspenders careful valuation with any of these assets by a qualified valuator and at the Cadillac level, so to speak? Or do you want the sort of drive-by ad hoc valuation because it doesn’t really matter? For example, the jewellery items, there’s twenty of them, they’re all relatively modest in value and you don’t want to go to the expense of incurring it. Those are the kinds of considerations you need to look at, I think, from the starting point on the valuation.  And then the second part of valuations is, as you say, making sure you get control and custody of all the assets so that you are indeed valuing the assets as of the date of death in a professional way, in a way that no one can criticize you for having messed up on.

 

Suzana Popovic-Montag: Well that’s great Ian. I think that sort of wraps it up for today anyways. And so I just wanted to remind anyone who’s listening, if they would like to send us some comments, they can certainly feel free to call us at 206-457-1985 or send us an e-mail at hullandhull@gmail.com. That’s hull, h-u-l-l-a-n-d-h-u-l-l @gmail.com. And, of course, you can feel free to visit our blog which is at www.estatelaw.hullandhull.com. Thanks again, 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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Listen to Valuations and Appraisals

Ian celebrates the 100th episode of Hull on Estate and Succession Planning.

He discusses the question of valuations and appraisals and how these affect estate mediation.

Comments? Drop us a line at 206-457-1985 or send us an email at hullandhull@gmail.com.

Valuations and Appraisals - Hull on Estate and Succession Planning Podcast #100

Posted on February 19^th, 2008 by Hull & Hull LLP

 

Ian Hull:  Hi, and welcome to Hull on Estate and Succession Planning.  You’re listening to Episode #100 on Tuesday, February 19^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.

 

Ian Hull: Hi and welcome to another episode of Hull on Estate and Succession Planning. I’m Ian Hull and today unfortunately I am doing this alone because Suzana Popovic-Montag is away.  So I’m going to carry this solo and I want to remind you that if you want to be heard on our podcast, you can participate in our discussion by leaving a comment.  Please feel free to call 206-457-1985.  Now the number is also in the show notes and our webpage at: hullandhull.com. It’s an easy source to link to our blog and e-mail address for our podcast is hullandhull@gmail.com.

 

Today I wanted to talk about a couple of things. First and foremost with great pride, I can announce we’re at 100. Those of you who listen to the Canadian Podcast Buffet would know that this means that we’re in the Century Club which we intend to advise our good friends at the Canadian Podcast Buffet about our status at hitting 100. This has been quite a ride. Suzana and I began this challenge in March of 2005 and we’re here today having hit #100. As I say, I’m here alone but Suzana is here in spirit.

 

So today the issue I wanted to talk about is one that really, I think, underlies many, many of the problems that we face in an estate administration and that is, the question of valuations. Now this isn’t just going to be sort of a comment or discussion about valuations, about very big properties and very expensive properties. This is about valuations globally and how it affects an estate administration.

 

The first thing that somewhat comes to mind with valuations is real estate. And one of the things that an executor, once you’re appointed executor is put to task right away at, is to deal with real estate typically. And most estate administrations you’ve got the house or a cottage or something like that. And the valuation issue becomes a primary concern. Let me just pause at this moment on the real estate issue and let’s just save for the comment that I want to talk about right is… let’s say classic residential property. When you’re an executor, you really need to look around, check out the lay of the land and see who your beneficiaries are. Often you’ll have at the table people who may want to buy the property and there may be deals that you want to make directly with the beneficiaries to avoid commissions and so on. But in almost any event, there is the need to determine what the value of the residential property is. And there’s two central approaches. One is to get the valuation done by what I call a drive-by appraisal. And that’s getting a reputable agent or getting a few reputable agents, two or three, to give you a drive-by appraisal of the property. You need that at minimum for probate fee purposes in the sense that if you’re going to be paying the probate tax in Ontario. But just to get an understanding of the value of the assets you want to, I think, I tell my clients to consider first of all is the drive-by. Within the real estate agent gambit is also the possibility that they will go and just do a full inspection and give you a valuation on that basis. So it’s more than a drive-by. But it’s done by a real estate agent. And it’s essentially done on testing the market and so on, in that approach.

 

The other important delineation is if you want to really lock down the value of the property is to get a certified appraisal, I’ll call it. In Canada, there’s a certain association of certified appraisers. They have to be qualified and so forth. And you get what is essentially a more fulsome report on the appraisal value. That appraisal though, is typically obtained in situations where there is going to be some dispute as to the value. Maybe it’s the value from the taxing authority, they want to know what the value is for capital gains purposes. Or maybe it’s the value determination within the beneficiaries. More often than naught, the drive-by or walk-through appraisal through an agent is enough for an estate administration. But I always tell my clients to consider the possibility of doing a formal appraisal. And I think, I mean, two things come from this. One is, is of course the obvious is that when you get a drive-by or you get an agent to do the appraisal, it costs some money but it’s typically something in the modest range. I mean, my experience is that somewhere around… sometimes they’ll do it for free, sometimes they’ll do it anywhere up to fifteen hundred dollars. To do a proper, certified appraisal though, you’re looking at anywhere between two and five thousand dollars depending on the residential property. Now you get more of a seal of approval, so to speak, a more qualified opinion with the more expensive, but it’s a totally get-what-you-pay-for situation.

 

So that’s something, I think, that you’ll want to really consider is, is that whether or not, if you have real estate, you want to proceed to get the informal appraisal or proceed to get the more formal appraisal through the certified process, through a certified appraiser. I can think of a thousand reasons to do one and a thousand reasons to do the other and so to guess at it right now doesn’t make sense. I just think that what I will say though is, is that typically people stay within the ambit of working with agents to get it and don’t go to the full level of the appraisal.

 

I just want to talk a minute about commercial properties. Now in my example I think of, a nice woman dies, she dies with a cottage that needs to be appraised for CRA purposes because they want to know what the capital gain is, they want to appraise the house because the house is to be sold, the proceeds are to be split between the two children. And thirdly, they own a little retail property around the corner that they bought 50 years ago and it’s for a convenience store at this point, with a little tenant on the top of it. I mean that kind of scenario. And really, I mean, starting with that, when you get into a commercial property, then I tell my clients we’ve got to really seriously consider getting the certified appraisal.

 

Now like anything though, I make sure that we’re getting the appraisal from experts. People who know the area, the property, it’s the same as residential. You don’t want to get someone to give you an appraisal that works out of Whitby, when their specialty is Whitby and the property is in Saskatoon. But the same thing goes with commercial properties. There are specialties within their different framework of commercial properties that you want to look to, to get the right person to get involved with the appraisal process.

 

Now from a government taxing standpoint, CRA, the appraisal on a commercial property is very important and it also can be very important from the standpoint of a disposition ultimately to the beneficiaries. So we’ve got this appraisal process and I want to take it to another level in a sense, another tier of appraisal problems and that is, is that whether or not it’s just a Mac’s Milk and a tenant on top property or it is a series of buildings or it is something more substantial, different buildings and some vacant land and a whole mixture of residential and commercial properties. Obviously you need to have them carefully appraised just for the taxing authorities’ standpoint alone. But it seems to me anyway, you want to take a look at the properties and determine what you will ultimately want to do with these properties. If, for example, some are going to be split up amongst the families, each property given to one child or something like that, what we call a direct gift of the properties through the Will, then that may affect how you’re going to approach the appraisal. If they’re going to be sold, that may affect your approach to the appraisal.

 

I notice now in my practice many more times what’s happening is, is that you’ve got situations where you’ve got say, six or seven buildings, some bigger than others, a portfolio of a few million dollars in real estate and you may want to unload them all collectively to a group. And there are obviously people who are interested in investing in collections of properties. I know Suzana and I have dealt with over the years situations where there’s such a large collection of properties that you can even find that some of the pension funds and other very big investors are interested in getting the real estate properties into their portfolio. So what’s important, I think, is to look at the end game, determine what kind of property we’re dealing with. Are we dealing with residential only? Are we dealing with a mix? Are we dealing with small commercial property? Or are we dealing with larger or middle-sized commercial properties? Seek out the appropriate advisors and where I say that is, is that I typically say to my clients, “Look, go to…for a commercial property situation where you’ve got multiple commercial properties…go to two or three of the big brokers, get some analysis done by them (a) on the valuation side but (b) on what they think they’re going to do to market these properties to get them sold. And they’ll often put a bit of a pitch together, so to speak, and go to the executors with some sort of framework as to how they think they can put the properties out on the market and ultimately sell them.

 

So it comes down to a real question of due diligence and, I think, anyway from my perspective, you can never spend too much time getting the valuations organized because they can be a tremendous source of litigation at the end of the day if you’re not careful.

 

Alright, well that’s just some thoughts on valuations. There’s many more issues that we can talk about in Episode #101 when Suzana gets back, so I will save that for her. As I say, it has been a great thrill and an honor and a pleasure to be able to work with Suzana on these 100 podcasts. I’m looking forward to another 100 podcasts and I know that if we combine these plus all the Hull on Estates podcasts that we’ve done over the years, we’re well over 100, but today does mark an important and a bit of a monumental day in my podcasting career, only sad to be doing this alone.

 

Alright, so thanks again for joining us and this brings us to the end of this week’s discussion. Thanks for listening to me today. We look forward to hearing from you and again, our email is at hullandhull@gmail.com or our comment line 206-457-1985. I’m Ian Hull and until next week, so long.

 

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

 

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

 

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

 

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Listen to Estate Assets

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

Estate Assets - Hull on Estates Podcast #90

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

 

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

 

Welcome to Hull on Estates, a series of podcasts for the Canadian legal community dealing with issues and insights surrounding estate planning in Canada.   Hosted by the lawyers of Hull & Hull, the podcast will touch on some key considerations when planning estates and Wills.  Now, here are today’s hosts.

 

Sean Graham:  Hi Natalia, how are you?

 

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

 

Sean Graham:  Oh, pretty good thanks.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Natalia Angelini:  Good point, Sean.

 

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

 

Thanks very much, Natalia.

 

Natalia Angelini:  Thanks, Sean.

 

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

 

Natalia Angelini:  Thanks for listening.  Bye.

 

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

 

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

 

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

 

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When looking at the myriad of issues and problems that are created with succession planning for a family business, it is often forgotten that the family member who has been charged with (or readily accepted) the job of carrying on the family business is not him or herself particularly happy with the proposed division of the estate.

The question of "fair but not equal" is often a lifelong struggle for those who want to pass on a family business. In some cases, there is simply not enough money to fund a relatively equal division of the estate, as the core assets of the estate are tied up within the family business.

In certain situations, the non-participating family business members are treated in a "fair manner" by being given, for example, the proceeds of an insurance policy as opposed to the family business on death. The child who is charged with running the family business may not see that as being particularly fair. He or she may feel that for him or her to financially succeed, he will have to work in the business for the rest of his life, while the other siblings who are receiving fixed assets simply have to wait for the estate to fall in and they do not have the same lifelong work commitments to fulfill.

On the other hand, things can get particularly complex where one of the children does indeed want to and does receive the shares of the family business. The financial calculation of this gift is often based on complex valuation formulas which accommodate for discounts in the context of the family dynamics. Unfortunately, the valuation issue alone can be both expensive and time consuming. However, if this is the technique from which the division of the estate assets is going to be undertaken, then early intervention into this issue is essential.

For example, some communication within the family about an agreed upon valuation process should begin well in advance of one's death. If the process can be agreed upon, then arriving at a value of the family business is much simpler. If the process is addressed well in advance of death, then there are fewer surprises to the non-business participating family members.

In our experience, sometimes it is best to leave the distribution formula up to the next generation. Meaning, let the children who are ultimately going to share the asset decide on the formula to be employed upon your death.

We will continue to look at these non-tax estate planning issues in future blogs.

All the best,

Ian & Suzana.