So, assuming I still have these things when I die, and there isn’t some other technology we can’t even image right now to replace how we use and interact with such stuff by that time, who gets those assets?

If we were talking about all my physical stuff, like my shelves full of books, my CDs and DVDs or my photo albums, those I can leave to my husband or a friend through my Will.  In fact, if I am like many of my clients, those items would just automatically go to my husband or other heir as part of my “items of personal use” or as part of the residue of my estate, and I would not even specifically mention them.

If asked, I think most people would agree that their online “stuff” is also valuable, and that they would want their nearest and dearest to have those things in the event of death.  The problem is, unless you also leave your heir(s) the passwords, it is like leaving someone your treasures locked in a trunk.  The heir has them, no one else can get them, but no one, including the heir, can access them.  Actually, not having a password may be worse, as you can always hire a lock-smith to break a lock, but if the password is a good one and the heir doesn’t know it, it’s going to really hard to find.

The flip side of this issue is that passwords exist for a reason.  It may not be a really big deal if someone accesses your online photos (although it might) but someone cleaning out your bank accounts because they got your PIN may be a very big deal.  So how to ensure that your passwords are available upon your death, but not so long as your are alive and well?  That is not an easy question to answer.  One way of dealing with it, as Byron Cannon of Australia suggests in his article, it to make a list of passwords and kept it somewhere so your executor will have access, but no on else will.  The list could be kept in a safety deposit box with the Will.  However, that would mean each time you open a new account of some sort, or create a new password, you’ll be going to the bank to update your list.  That is not practical.

There are ways of storing your passwords online, which themselves require a password to access.  That doesn’t solve the problem completely, but it might help.  I know someone who gave a friend the first word of a two-part password, and her sister got the second word.  They would have to get together to access the “password vault”  Again it might seem excessive if all we are talking about is access to your Kindle account but if it’s your bank account, it may be warranted.

Who gets your passwords (and therefore access to your online stuff) will depend on a lot of things, including your level of trust, and whether the lucky person is also meant to look after you if you become incapable before you die.  If you think you might need some help with this, or any other matter concerning a new Will or an estate plan, please contact me.

To recap, here are the parties:

Reg Easingwood (the deceased, died Sept 2009)

Kay Easingwood, married Reg in Dec 1983. (2^nd marriage for both)

Reg’s four adult children (Lauren, Vicki, Hank and Edward.  Their mother had died in 1976;  Edward died in 1996, Hank died in 2009, shortly before his father.)

Kay’s two adult daughters from her first marriage (not part of the litigation)

The documents:

1. Marriage agreement. (1983) Mainly dealt with what would happen upon death:  no sharing of assets, not claims against estates.
2. Power of attorney to Reg’s son Hank and his daughter Lauren in 2001.  Unfortunately, the two had to act together, so if one died or become incapable, the other could not continue either.
3. a Will in 2004, creating a life estate in income and his residence for Kay with a gift over to the children/grandchildren.  (house was in Reg’s name alone) That will was in place when Reg died.
4. An Alter Ego trust established in 2007 by the attorneys under the PA.

The alter-ego trust was set up using the power of attorney. The trust terms mirrored those in Reg’s 2004 will, including life interests for Kay in income and the residence.  All of Reg’s assets except his residence and joint accounts he held with Kay were settled on the trust. The declared value assets under his will was $530,000.  The assets in the trust were about $5.6 million.

Hank died in mid Aug 2009;  Reg died four weeks later (Sept 12, 2009) and Kay started a WVA claim two weeks after that.

Kay subsequently amended the WVA action  to add claims under the  Family Relations act and the Fraudulent Conveyances act.  She asked for the following (among other things)

1. a declaration that the Trust is null and void and therefore all assets transferred to the Trust are properly assets of the estate;
2. if the Trust is valid, a declaration that the various transfers of property to the Trust were fraudulent transfers and are void and of no effect;
3. declaration that the deceased, his estate, the Trust, and the beneficiaries were all unlawfully enriched
4. an injunction;
5. a declaration that the deceased failed to adequately provide for Kay in his will (WVA action)

Trustees of the Alter Ego Trust applied for dismissal of everything except the WVA claim (that will be for the executors to do later)

Madam Justice Dillon found that under the power of attorney, Lauren and Hank owed duties of loyalty, prudence, and good faith to Reg, but not to anyone else.  Therefore, the only question to be answered was whether, in exercising the PA, Hank and Lauren were in breach of their duty to Reg (as opposed to a potential claimant against his estate).

The court found Lauren and Hank acted in Reg’s best interest because of the imminent danger that the PA would become inoperable (if Hank died) and because the terms of the trust exactly mirrored what Reg himself had set up in his will.

Next, the court dealt with the Fraudulent Conveyance (FCA) claim.  Kay said she was a creditor, first under the family relations act (all of Reg’s assets being family assets according to her), second under unjust enrichment (the hard work she said she provided to Reg’s companies) and third for breach of the marriage agreement (not argued)

The judge said, first, the claim must have arisen during Reg’s lifetime.  For that reason, because a Wills Variation Act claim arises after death, it cannot support a FCA claim;  ie, a future WVA claim does not make someone a “creditor or other”.

Also the Family Relations act (FRA) could not be used as a basis for Kay to claim status as a creditor or other under the FCA.  No FRA claim existed when the assets were transferred to the trust, so no FCA status.  The fact that a claim could arise in the future was not relevant.

Kay’s claims in unjust enrichment were really against Reg’s companies, not against Reg, and therefore could not affect his estate, and there was no evidence to support that she ever expected to be paid for looking after the household or Reg as became less capable.   Additionally, the court found the marriage agreement provided a bar to any such claim.

Nevertheless, the judge reviewed whether the dispositions of the assets to the trust were made with intent to delay, hinder or defraud Kay.

Because the trust tracked the terms of the will, and because of the marriage agreement, the judge found no such intent.

SUMMARY

1. For anyone advising on powers of attorney, if you are trying to create an enduring powers, make sure it’s not messed up by sloppy drafting.
2. As an aside, this case was decided under the old powers of attorney act.  So do attorneys still have the right to create a trust for the “adult”/donor?  Because the new act creates a number of express restrictions on attorneys, it might be a good idea to express that ability in the PA,  but I think even without that, this case makes it clear that if the trust tracks an existing will, with the requirement in the act that the attorney must act in the adult’s best interests, the answer is yes.
3. A potential WVA claimant is not a “creditor or other” for purposes of the FCA, which will make everyone doing estate planning, whether for tax, creditor proofing or other reasons, breathe a sigh of relief.
4. Also on the “future claim” question, the judge said that since no FRA claim existed when the assets were transferred to the AE trust, Kay could not be a “creditor or other”;  again, the claim must exist at the time of the transfer.
5. Kay was not a creditor or other under her unjust enrichment claims as those claims failed for a number of reasons:  lack of evidence and the marriage agreement being chief among them.

Obviously in circumstances where there is an actual Family Relations act action under way, or a successful unjust enrichment claim, estate planning that removes assets out of reach of the claimant can give rise to a FCA claim, but that’s not news.

The case is under appeal, and the WVA claim remains to be dealt with, but unless the CA overturns the trial court, the assets in the trust will not be subject to the WVA claim.

I’ll let you know what happens at the Court of Appeal level.

In a nutshell, they aren’t. Not only are they not good at it, most aren’t doing it at all.

If you count yourself among those who really need to do some planning, contact me and we can discuss what your business might need. It’s really not as painful as it might seem. Remember, the future is going to arrive whether you like it or not.

Very briefly, the WVA allows a disappointed spouse or child to challenge a will on the basis that the deceased failed his or her legal or moral duty to adequately provide for the spouse or child in the will. The FRA allows one spouse to claim against the assets of the other in the event of a breakdown of the marital relationship (whether a legal or common-law marriage). And finally, the FCA allows a creditor to claim that property which should have been used to satisfy or secure a debt has been improperly transferred out of the debtor’s name. Obviously there is a lot more to each of these laws, and whether a claimant will be successful depends on the circumstances of each situation, but to understand the Easingwood case, this is enough.

Reg Easingwood had four adult children when he married Kay Easingwood, who had two adult children. It was a second marriage for both, and as they both had significant assets, they signed a marriage agreement saying they would keep their property separate and not claim against each other’s estates. They each wanted to ensure their assets went to their own children. Reg and Kay remained married from 1983 until his death in 2009.

In 2001, Reg gave power of attorney to one of his daughters and his son Hank (a lawyer). The power required the two of them to act together, so that if one died, the power would terminate altogether. This was later to become an issue.

In 2004 Reg made a Will. Kay would have an income for her life, and she was allowed to remain in the family home (registered only in Reg’s name) during her life. Reg also left money to pay house expenses so long as Kay lived in the house.

The rest of Reg’s estate was divided among his surviving children and grandchildren. Kay knew about the Will and approved of it.

Reg had a number of business interests, including rental properties. Kay also had her own business, which she operated out of Reg’s offices, and later, as Reg developed dementia, Kay took over some of the duties in operating Reg’s businesses.

When it became clear that Reg was suffering from Alzheimer’s, Hank and his sister started using the power of attorney to manage Reg’s business affairs, with Kay’s blessing. However, in 2005, Hank was diagnosed with cancer, and by 2007 it was clear that he might not survive his father. In order to ensure that Reg’s affairs could continue to be managed after Hank’s death, and for tax planning purposes, Hank and his sister created and settled an Alter Ego Trust on Reg’s behalf. They transferred all of his assets into that trust, except his residence and his Canada Pension benefits. In all, about $5M in value went into the Trust, leaving about $550,000 in the Will. The terms of the Trust tracked Reg’s Will exactly, so that the income fund and the house operation fund were in the Trust.

Reg died in 2009, and Kay filed her first law suit within weeks of his death. She applied under WVA, claiming that Reg had failed to properly provide for her in his Will. She also claimed that the Alter Ego Trust was not a valid trust, so that the assets transferred to it would fall back into Reg’s estate and her WVA claim would include them. Just in case that failed, she also claimed that the transfer of Reg’s assets to the Trust was a fraudulent conveyance, meant to hinder her position as a creditor of Reg’s estate under both family law and unjust enrichment for the work she had done for Reg’s businesses.

So what happened? The Supreme Court judge found that the Trust was valid (it is open to attorneys to settle a trust for the person who gave them the power, so long as the terms of the trust are for the benefit of that person.

Since the trust was valid, was the transfer of the assets to it a fraudulent conveyance? Again the judge said no, because Kay was not a creditor as defined by the law.

Bottom line? Provided it is done properly, (ie, the proper matters are considered when the trust is created and the assets are transferred to it), the creation of an Alter Ego Trust is a good planning strategy.

An analysis of how the judge came to her conclusions will follow in my next post. And of course I’ll be watching for the Court of Appeal’s decision to see if the Supreme Court’s decision stands. I hope it does because it is a good, well-reasoned and very helpful judgment.

If you think your estate plan might benefit from a discussion about an Alter Ego Trust, please contact me.

So imagine my dismay when, in the course of helping clients administer their parents’ estates, I discovered all of the same nasty issues cropping up. People will fight over the silliest things when money and emotions come together. What is it about the junk that clutters Mom’s house that makes it suddenly so desirable upon her death?

Telling a client he is being irrational when he gets upset over his brother laying claim to Dad’s beat-up Lazy-boy, is not going to help. He probably already knows that. He knows he is acting like a child. And that is really the point, isn’t it. It is a matter of sentimentality and emotions and hanging on to the past.

These types of disputes, like their counterparts in matrimonial law, really do not belong in the court system. They are much better dealt with through sitting down and discussing the underlying issues: the emotions, the pent-up resentments, the petty grievances that turn into major issues under stress. What can be more stressful that the death of a loved one?

This is where mediation can really play a role. A trained mediator can sit down with the parties and try to find a middle ground. Unlike a judge, whose job is to listen to evidence (a really limited amount of information) and then make a binding decision, a mediator can listen to each person’s “side” of the story and then ask questions to find out what is really going on. Suggestions are made in an effort to get the family members to come up with their own solution.
“You stole Mom’s antique clock and sold it, she meant for me to have it!” may really mean, “you never thought I was worth anything and even though you knew Mom wanted me to have that clock you don’t think I am worthy of it”. Maybe the Mediator can find out (a) what Mom’s intentions really were, (b) why the executor sister who sold the clock actually did so and (c) whether the complaining brother really wanted the clock or just wanted the money for himself. Quite a different approach from what the court could do with an accusation of theft!

There are other benefits to mediation. It is a “softer” approach that may allow family members to resolve their dispute without having to “sue” each other. There is nothing more likely to cause people never to speak to each other again than a public court fight. It is also a less expensive approach, meaning that at the end of the dispute there may still be something left over for the beneficiaries.

A woman (Myrtle) falls ill, goes into hospital in Feb 2006.

She makes a will in the hospital, using a “template”. No legal advice is sought. She dies soon after.
Myrtle is married to a Mr. P, her second husband, to whom she leaves nothing. She has five children (all adults), and leaves her estate to three of them. She ignores two of her children altogether: her two mentally disabled sons who probably need her help the most.

She appoints her son Bert as executor. Bert’s wife is one of the witnesses to the will, as is the husband of one of her daughters. Basic wills law: if a beneficiary, or the spouse of a beneficiary, is also a witness to the will, the gift to that beneficiary is invalid. Your basic “template” Will may not make that clear. The result is that part of Myrtle’s estate is distributed as if she left no will at all.

Bert is an accountant and has lent his parents (so he says) a lot of money over the years, which he now claims as a debt of the estate. Of course he has nothing to back that up.

The template Will does not give Bert the ability to refinance Mom’s property (a farm) and no one is making the mortgage payments, so the farm goes into foreclosure. The “template” does not include the powers Bert needs to deal with the estate assets properly.

So Bert offers to buy the farm from the estate. His sisters get greedy and refuse to agree to the price he offers. Then due to the foreclosure proceedings, the fact no one is maintaining the place, and the 2008 market melt-down, the value of the farm falls by 40%.

Bert eventually does buy the farm after putting in a whack of his own money for repairs to try to sell it. Because the template did not give him the specific power to spend that money, his sisters dispute his claim for reimbursement. They also dispute his claim for executor’s fees.

In addition to that dispute and the foreclosure, Mr. P makes a claim for the of the estate that falls outside of the will and the Public Guardian makes a claim on behalf of the two disabled sons. That makes four court actions out of one bad estate plan.

The dispute against Bert is heard by the Registrar in January 2011. Myrtle died almost 5 years ago and the Estate is still not distributed.

What is wrong with this picture? And how did an estate worth $813,466.48 (even after the fall in real estate prices) end up having only $57,032 left for distribution?

In this case, there were a number of factors, but at the bottom of it, the fact that Myrtle and her family wouldn’t spend say, $1,000 to have some legal advice and a proper will done, cost the family at least several hundred thousand dollars. If they could have gotten the farm sold in 2007, they probably would have been up by another two or three hundred thousand.

Havng a good will and estate plan drawn up might seem costly, but what if it could save you hundreds of thousands of dollars? I’ll bet Myrtle and her family would now think it was money well spent. If only they could go back and change things!

Where the years really show, though, is when we talk about our families, especially elderly parents, relatives and friends. In those twenty or so years, six parents have become ill and died, and four older relatives are now suffering from ailments that need, if not hospital care, then at least assisted living. It’s a big strain on my friends, as they strive to make the best arrangement possible given the finances and needs of the elderly.

A common thread is the reluctance of the elderly to accept the help they need. Either they don’t think they need it or they think that with minimal help they can manage in their own homes. That puts a tremendous strain on those trying to make the necessary arrangements. Another common thread, which I think is one of the underlying causes of the first problem, is the difficulty the older generation has in discussing their wishes with those who will be making the arrangements.

Those of my friends and cousins who are finding it easiest to deal with the issues faciong them, are the ones who actually broached the subject years ago with their parents/relatives/friends. They asked the tough questions: Do you have a will? Do you have a power of attorney? Who do you want making decisions for you if you can’t do it for yourself? Where would you like to live if you can’t manage in your home anymore?

They made sure it got documented via wills, representation agreements, powers of attorney.

One of my friends has been quite Machiavellian about her aunt’s situation. She befriended the director of a lovely assisted living facility. The elderly aunt is coming for a visit to my friend’s home, and then they are going to meet the director friend for lunch, except “she’s really busy” so they’ll have to meet her at the facility. Chance for a tour, yes they take pets, isn’t this nice, etc. We’ll see if it works.

On the other hand, one of my cousins has a parent who is very “old school”, from a culture where parents never discuss finances or living decisions with their children. There is no power of attorney or other planning tool in place. My cousin has just about had a nervous breakdown dealing with her father. Things came to a head and she threatened to stop providing 24 hour care. Someone else finally talked some sense into him, sat both parties down and forced them to confront the problems. Things are back on track…for now. But the father is intractable, has a sense of entitlement as big as all outdoors and thinks caregivers are servants to be ordered about. I think my cousin is going to have to apply for adult guardianship to solve the problem.

So what to do? Yes, it is a tough topic to discuss. You can’t just sit down for coffee one afternoon and say “so Dad, what should we do with you when you lose your marbles? When the Depends don’t do it anymore? When the third care giver in a month quits because you are such a miserable old coot?”

Or maybe you can . Maybe it’s better to raise the questions while Dad still has a sense of humour, rather than when he really is a miserable old coot and is no long able to listen to reason. Do it for your own sake, and also for his.

For example, did you know that if you have a will, and then you get married, the will is no longer valid? The only exception is where you make a will that mentions the upcoming marriage, names the new spouse and the date of the wedding. And if you don’t do that? Your spouse could find that you died without a valid will!

This change brings legal marriages into line with common law marriages, because there is nothing about just moving in together that invalidates your existing wills.

Another interesting change deals with what happens when a person does die without a will. Right now, if a person dies leaving a “spouse” and children, the spouse gets the right to live in the house (assuming the house was only in the deceased’s name) for life. (A family home in joint ownership is not affected.) He or she also gets the first $65,000 of the deceased’s remaining estate, and splits the rest with the deceased’s kids.

Under the new law, assuming the house is only in the deceased’s name, the spouse does not get the right to live there for life. Instead, he or she gets the first $300,000 (which can include the house), but only if all the deceased’s kids are also his or her kids. If there are children of the deceased from another relationship, then the surviving spouse only gets the first $150,000. In either case, if there is more in the estate than the first $300,000 or $150,000, as the case may be, then that excess gets split 50/50 between the surviving spouse and the deceased’s children. That means the kids can easily end up owning part of the family home.

Given the value of real estate these days, it really makes sense to encourage your spouse to add you as a joint tenant to the family home if that’s appropriate (it isn’t always) and to make a will.

A third big change is the broad powers the courts will have to “fix” problems with wills. You wrote all over your will? You added stuff after you signed it? You never actually got around to signing it after you went to see your lawyer? These may not be the big problems they used to be. Currently, if you cross something out on your will and write in something to replace it, the crossed out parts that can no longer read are gone, but the replacement parts are not valid unless you signed and had them witnessed according to the rules for making a valid will. The result can be a gap in your testamentary wishes. Under the new law, it will be possible for your executor to go to court to ask for an order fixing that problem. Of course, the cost of that means less for the residuary beneficiaries, so it’s bestter to avoid such problems in the first place.

If you want to make changes to your will, it is still best to consult an expert and have it done properly, or, new law or not, part of your estate could still end up in the wrong pockets!

I’ll write more about the coming changes in future posts.

The National Post, in today’s print edition, advised us that Canada had lost its oldest citizen. Lost? where did she go?

I regularly read the obituaries, (yes, I’ll admit it, people’s lives facinate me) and at least 80% of the obits say that the deceased “passed away.” Sometimes they just “passed.” What did they pass, a kidney stone? a slower vehicle? Or did they omit to do something (like planning their will, maybe?)

I am always heartened to find an obituary where the family will admit the loved one “died.” What is it with us as a society, that we cannot bring ourselves to speak frankly about death, even when it affects us directly?

I ask this question because of what it means for estate planning.

Given that we have trouble speaking in terms of death and dying about people who have actually died, how can we expect people to admit they themselves will one day die? And if we can’t admit that much, is it any wonder so few of us actually get to the point of planning for that day?

I recently had an elderly client come in, wanting to make a will. She mentioned, apologetically, that she needed a will because she’s getting older and several close friends had recently died. I think it’s great she recognized that she needs to do something before it’s too late.

But how many of us can actually know when it will be “too late”? That bus could run over me today. I hope not until much later, but it could happen sooner. And if it happens to you sooner, what will your loved ones say about you? That you “passed” on doing any planning?

Make the effort to talk about this difficult topic, because if you don’t it could be a whole lot tougher for your loved one after you have (gasp!) died.