Predatory Marriages – what are they, how can we protect elderly loved ones from them and how can they can impact estate inheritances?

As our population ages in the coming years, it is anticipated that personal wealth in the astonishing range of several trillion dollars, will be transferred from one generation to the next. Much of this wealth will transfer simply from husbands to wives or from parents to children.  Other wealth, however, will transfer from a widowed parent to a new life partner against the testator’s previously stated wishes, either due to legal requirements or due to the influence of the new spouse.

The case of Banton v Banton in Ontario is a perfect example of how a predatory marriage can impact an otherwise standard family distribution.  The testator in this case married a member of the food services staff in his long-term care facility, then revised his will to provide for his new wife; notably, his estate was large enough to have provided for both his wife and his children, but his new will distributed his assets to his second wife.

Following Mr. Banton’s death, his children challenged the validity of the will and the following facts were considered:

• The marriage occurred very close to the end of Mr. Banton’s life, following a period of reliance upon the new wife as a paid caregiver;

• Mr. Banton was deemed to have been mentally incompetent at the time he wrote his new will (and likely also at the time he entered into the marriage);

In Ontario, much like in British Columbia under current statutory law, marriage nullifies previously existing wills.  The will Mr. Banton executed before his second marriage was no longer valid under the terms of the statutory law.

Mr. Banton was deemed to be mentally unsound at the time of drafting his new will after the questionable marriage.  This will is therefore not viable for probate purposes, rendering Mr. Banton intestate (having no valid will), and his estate became subject to distribution in accordance with the government’s statutory provisions for individuals without wills.

Currently, in British Columbia, if this situation were to arise, Mr. Banton’s second wife would receive the first $65,000 of his estate assets, as well as 1/3 of the remainder of his assets. His children would split the other 2/3 of the remainder of his assets equally between him. These distributions would, of course, occur after his debts and those of his estate had been repaid in full.

As our population ages, we need to turn our minds to the ongoing right of our elders to direct their lives, engage in rewarding interpersonal relationships and explore new experiences.  We will also begin to see increased cases providing guidance on how to ensure mental competence at the time of a late-stage marriage.

At Lockhart Law Corporation, we work with clients to ensure protection of family assets, responsible support of loved ones who are engaged in legitimate relationships and the eventual distribution of our clients’ assets in accordance with their stated wishes.

When I meet with clients on corporate, conveyancing or other legal matters, they almost invariably ask me about wills and estates. Clients often hope that they have no estate planning needs – because they have already arranged for joint ownership with their parents / children / spouses.

Joint ownership is a self-help estate planning mechanism I see regularly in the Fraser Valley, as residents are often heavily invested in real estate. The basics of joint tenancy in real estate are widely understood and it is relatively cost-effective to arrange, making it an attractive DIY estate planning approach. Regrettably, it is also often recommended by seemingly knowledgeable and trusted sources, who do not understand the negative implications of joint registration in certain circumstances.

In many cases, SEVERAL of the following drawbacks will apply to the use of joint ownership as an estate planning mechanism:

• Taxes – Distribution as a Triggering EventWhen you transfer or sell certain assets, the proceeds of sale may be deemed to be income under the Income Tax Act (Canada) and therefore taxable.  The Act does not permit transfers at less than fair market value, unless you qualify for a specific exemption – transfering a portion of an asset to a child may therefore trigger the payment of taxes;

• Taxes – Death as a Triggering EventWhen your asset is sold following your death, the proceeds of sale may be deemed to be income to your joint owner under the Income Tax Act (Canada).  This is common if the asset was your principal residence but not your joint owner’s principal residence;

• Taxes – Income Attributed to Original OwnerWhen you transfer an asset to a spouse, income will often still be attributed to you under the Income Tax Act (Canada);

• Exposure to CreditorsWhen another person is on title to your asset, their creditors may be entitled to register judgements against the asset and may even become entitled to force a sale of the asset;

• Loss of ControlWhen someone else holds an ownership interest in your assets, you will no longer be able to sell them or refinance them without that other person’s express consent;

• Potential for LitigationWhen multiple other parties share title of an asset, it becomes less likely that they will all agree to sell at the same time or on the same terms (both before your death and afterward). When one beneficiary is on title in order to facilitate for others, there is also a risk that they will NOT share as you wished. Even when a beneficiary does share, there is a risk that other beneficiaries will take exception to how the asset was handled, the price it was sold for or the management of the funds following a sale.

Despite these drawbacks, joint ownership can be effective in the context of a broader, well-planned approach to your will and estate distribution.

In British Columbia, very few people are entitled to contest the terms of your Will. Under section 2 of the Wills Variation Act, the Court may order a modification of the terms of your Will if it determines you have not made “adequate provision for the proper maintenance and support” of your spouse or children. In some cases, the Courts will vary the distribution of assets that you set out in your Will; alternatively, the Courts may add or remove beneficiaries.

ONLY your spouse and children may file a lawsuit under the Wills Variation Act. This legislation defines a spouse as either a legal husband/wife, or as someone you have been cohabitating with for a minimum of two years, in a marriage-like relationship. A child under the Act means your biological child or your adopted child, but not your step-child.

Check here to determine whether you have a claim related to a Predatory Marriage involving an elderly or incapacitated loved one.

Legislative Update!

What constitutes the legal end to a common-law relationship will be changing under the Wills, Estates and Succession Act, which is anticipated to be introduced in early 2012 (See Updates on WESA). If you are contemplating the end of a common-law relationship, or if you are revising your Will following the end of a common-law relationship, qualified legal advice is critical in today’s changing legal environment.

Other Claims Against Your Estate

Clients often express concerns that their siblings, business associates, former spouses and even friends, may attempt to disrupt the administration of their estate by claiming an entitlement to all or part of its assets.  These relatives and associates do not have the right to make a claim under the Wills Variation Act.

While these individuals are not entitled to make legal claims to modify the distribution of assets as set out in your Will, they may be entitled to advance contractual or other claims. This means that if you owe someone money or if you are holding something that does not belong to you at the time of your death, your estate could be sued just as though you could be if you were still living.

With respect to unequal treatment of siblings, two recent cases have further entrenched the notion that gifts made to a child by a parent prior to death are a legitimate consideration in both the parent leaving a smaller share to that child through the Will, and to the courts refusing to vary such a Will if the child advances a claim under the Wills Variation Act.  Both Doucette v. McInnes(2009 BCCA) and Gould v. Royal Trust Corporation of Canada (2009 BCSC) elevate the importance of gifts made during a deceased’s lifetime beyond previous cases.  In Gould, this is particularly significant due to the fact that the daughter who sought to vary her mother’s Will was physically disabled and had not been gainfully employed for a lengthy period of time prior to her mother’s death. Traditionally, these would be factors that could indicate financial need on the part of the daughter, sufficient to increase her mother’s moral obligation to provide for her.

The Court found though, that in part due to a gift of valuable property to the daughter during her mother’s lifetime, any modification of the Will resulting in an equal division of the mother’s remaining assets would in fact have resulted in an inequitable surplus inheritance by the daughter, to the detriment of her sibling.

Both of these cases also addressed issues relating to estrangement and difficult family relationships, which are unfortunately common in this field of law.  If you have questions about advance gifts you have given or received, or about providing for the additional needs of one child over another, qualified legal advice is imperative to ensuring your wishes are carried out after your death.

A pro forma Will is particularly insufficient to address distributional inequalities between beneficiaries.  For more information on the hazards of a so-called ‘simple’ Will, see DIY Risks.

Wills avoid the need for probate.

No! Wills are designed for use in the probate process, to ensure your wishes are followed rather than a one-size-fits-all plan found in legislation and used when a person dies intestate (without a will).

Only wealthy people need professional wills.

Definitely not! This topic is too broad to cover adequately in this format, but if you have young children, disabled children, step-children, a common-law spouse, a disabled or elderly spouse, have been married more than one time, own assets outside of British Columbia or own shares in a company, among other factors, you should seek legal advice from an estate planning lawyer.

Joint assets negate the need for a will.

Sometimes, unless… If you and the joint owner spend time together, you could die or become incapacitated in a common accident. If you put one child on title to your assets in the belief they will share with other children after your death, you may be surprised to learn how often they do not.

The Executor can implement the will right away.

No! The Executor is not the official legal representative of the Deceased until the Court has confirmed the will and issued Letters Probate to the Executor.

Probate takes about a month or two.

Well, sort of… Before an application for probate can even be submitted to the Court, the Executor must search for other wills, confirm all assets and liabilities, then notify all potential beneficiaries of your passing and provide them with a copy of your will. After submitting the application, processing times at the Court Registry often take about a month or two, or more.

But then… Following receipt of Letters Probate, your affairs must be settled (debts paid, assets sold, tax filings submitted to government) and a proposed distribution must be approved by your beneficiaries or confirmed by Court Order. Distribution of assets commonly takes place a year or more following death.

Probate is too much work, it is better to die without a will.

Just the opposite! Dying intestate (without a will) does not avoid probate, it merely adds a layer of administrative work to the process. Before an intestate’s estate may be probated, a legal representative (Administrator) must be selected and approved and the Administration may be required to deposit a sizeable financial bond with the courts. All other steps remain and must be completed after the appointment of this Administrator. The Administrator must then distribute assets in accordance with legislation rather than your personal wishes.

“You want to charge what?!” In a perfect world, no executor would ever hear these words (and no beneficiary would feel the need to utter them). Unfortunately, issues involving executor’s fees often do arise.

Whether you are crafting your own will, agreeing to act as an executor, or approving accounts as a beneficiary, it is imperative to understand how executor’s fees are set. Fees can be set in a will itself, but if they are not specifically set out in a will, the Trustee Act limits fees to a maximum of 5% of the value of estate assets, plus a calculation for ongoing management if that becomes necessary.

It is a misconception that executors are entitled to 5%; this is the maximum fee under the statute.

Let’s assume your executor sells your assets for a total of $300,000, distributes some of the estate immediately but then must hold $200,000 in trust for three years before distributing to certain beneficiaries. Assume the executor invests that money and the estate earns $15,000 in interest each year. Maximum fees would be:

5% of value estate capital ($300,000)	$15,000
5% of income ($15,000 x 3 years)	$ 2,250
.4% of average annual balance ($200,000)	$ 2,400
Total Compensation:	$19,650

In determining what to charge as an executor, and what to approve as a beneficiary, the size of the estate, complexity of the matters dealt with, time and skill required to finalize matters and level of success achieved are all to be taken into consideration. Every beneficiary whose inheritance is affected by the fee must approve the executor’s fees, or the executor will have to apply for the Court’s approval before taking the fee and finalizing the estate.

We’ve all been there: young, vibrant, decorating our first house, having a first child, thinking about writing our last will and testament. Not so much? You aren’t alone!

The Fraser Valley is home to a growing number of young families. In my conveyancing practice I meet young parents excitedly planning for their futures with an investment in real estate. To say the least, they are not keen on thinking about their premature demise.

Knowing the focus of my practice, clients often bashfully admit they have yet to draft a will. So I immediately ask what they think would happen if they died unexpectedly. Married clients tell me, time and again, they believe their spouse would get everything. Not even close! Without a will, your assets must be distributed according to a legislative formula, which likely does not reflect your own preferences.

The law in this area is changing. For the past several decades, the law has provided for the following distribution:

First $65,000 of your assets to Spouse

1/3 remainder of your assets to Spouse

2/3 remainder of your assets divided equally among Children

It is expected that the Wills, Estates and Succession Act will become effective in the early months of 2012. After that, intestate distribution will depend upon whether or not your spouse is the natural parent of all of your children. If your spouse is the natural parent of all of your children the first $300,000 of your estate assets will go to your spouse. If your spouse is NOT the natural parent of all of your children, the first $150,000 of your estate assets will go to your spouse.

Of course it is true that many assets are held jointly with a right of survivorship to the surviving spouse, but this is not always the case. If you or your spouse chose to go on title to your major assets alone to achieve a first time home-buyer’s exemption or to avoid effects from a poor credit history, your spouse may not have access to the assets he/she needs to raise your children.

Under the current law, your spouse would enjoy the right to remain in your marital home (subject to financial considerations). Under the WESA, this right expires after 180 days.

By far the biggest risk intestate parents run though, is that their children will not be placed with the guardian they would have chosen.

If I don’t have any assets why do I need a will?

Even in the event that you die with minimal assets, a will is necessary to legally identify a guardian for your minor children, or your beloved pets, and someone who will be authorized to distribute your personal mementos. A will also ensures that assets you do not currently own, or even anticipate owning, will be transmitted appropriately following your untimely death. Such assets can include inheritances or other windfalls, but often are the result of accident insurance claims. If you are involved in an accident that causes either a personal mental infirmity or your death, a will ensures that proceeds of litigation will be distributed in accordance with your wishes following your death.

Do I still need a will if I put one of my children’s names on all of my accounts and on title to my real estate?

This type of ‘self-help’ approach is very common. Unfortunately, there are significant legal pitfalls associated with this type of estate planning.

When a child jointly owns a residential property with a parent but does not live in the property, the tax consequences can be MUCH more onerous than the costs of probating the asset under a will. Further, if it is your intent to gift a property to only one child in this manner, you should be aware of several court decisions overturning this type of gifting in favour of a more equal distribution with your other children. A properly crafted will can overcome these and other estate planning pitfalls.

Why use a lawyer to draft my will?

There are many reasons to rely only upon a qualified wills and estates lawyer – the four most significant are listed here:

• Execution and handling requirements for wills are very specific. Failure to adhere to these specific requirements can occasionally result in your will being deemed null, or more commonly in additional work being required during the probate process.

• Kits that can be purchased at drugstores or online make estate planning seem so simple. Too simple! Clauses that are wonderful for one person can be tragically ineffective for others – what you don’t know about estate planning often results in a lawyer being retained to handle a complicated probate or estate litigation process. For a more detailed discussion of online and kit products see DIY Risks.

• Not all assets you own or have entitlement to during your lifetime can be conveyed through a will. Lawyers are often retained to interpret or litigate imprecise attempts at conveying such assets.

• No other professionals or para-professionals are trained in drafting complete trusts (for minors, disabled beneficiaries or children with rocky marriages) to protect your assets from misuse or waste.

What is the difference between a Power of Attorney (POA) and a Representation Agreement?

A POA is a document effective during your lifetime, allowing another person to deal with your assets in the event you are unavailable to do so. Powers of Attorney may be crafted to limit the type of assets a person may deal with, or the timeframe they are authorized to act, among other restrictions. A Representation Agreement is a document effective during your lifetime, allowing another person to make medical decisions on your behalf in the event you are incapable of doing so.

Why does a thorough estate plan include more than just a will?

A will only takes effect at the time of your death, not before, and then must be probated before assets can be transmitted into the hands of your Executor for management and distribution. A will cannot ensure that your business interests or personal holdings are managed effectively during mental or physical infirmity prior to your death. As well, a will cannot ensure that you are taken care of in accordance with your wishes during a period of mental infirmity prior to your death.

When it comes to deciding how their personal items will be distributed or disposed of, clients often say, “Oh, I’ll just let the kids sort that out after I’m gone.” In fact, I probably hear this (or something along these lines) at least once a week.

The trouble is, friction is not always predictable – particularly during the grieving process. I have seen families enter into the emotional and legal equivalents of hand-to-hand combat over items of no monetary value on many occasions:

• The $10 drugstore watch Dad bought 20 years ago that still keeps perfect time; Dad was so proud of that watch!
• The plastic picnic dishes Mom always set the children’s table with at family gatherings; still in good shape after four children and six grandchildren.

The list goes on and includes even truly mundane items such as the bagel toaster no one even realized Mom and Dad had owned, tucked neatly away in a cupboard. It also includes that set of three paintings they bought on their honeymoon – while two of three children assume they will each get one, their other sibling may see the set as a single item never to be broken up.

Needless to say, my clients wouldn’t wish trivial arguments on their grieving children, but many simply can’t see it happening to them. To these clients I have often said, “I’m sure you’re right, and after all, I haven’t ever met your children. But… I have met everyone else’s…”

For the most part, I believe my clients are right about their children. The trouble is, there isn’t a reliable way to determine who will turn out to be wrong. Allowing an estate planning lawyer to craft one of several simple solutions for you is one way to ensure that you will be right, though!

It should also be noted that from a legal perspective, it is improper to confer your discretion upon other parties: this is your will, not your children’s. Leaving certain decisions to others could have the effect of making portions of your will unenforceable.