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Wealth Preservation Course Materials
The Concept of " Wealth Preservation " It's a fundamental goal of lawyers who prepare wills and plan estates, to try and achieve certainty, no matter what the future holds. This is hard enough to achieve with all things remaining equal, not to mention the complexities of modern society with its multi families , and the age and population demographics that we have all heard so much about. Financial planners now advise to prepare your affairs to assume you will live to be 90. Estate planning has traditionally focused on the object of avoiding/ minimizing tax upon death. While this remains important, what has often been over-looked, or not dealt with adequately, is the often more significant cost of estate litigation. This is particularly the case in estates of relatively modest amounts, where a bitter fight can often deplete most, if not all, the estate. Lawyers and clients have frequently missed proper planning, even in red flag situations involving second or third marriages with children and step-children of one or all of the relationships. Wealth preservation is the concept of knowing the legal pitfalls and basic requirements of estate law, so as to utilize various methods of transferring wealth to the person/s who you wish to do so, with the increased chance that your said goals will be attained. The concept involves working with a lawyer with a view towards taking steps to avoid the cost of estate litigation , by recognizing the potential for family disputes, and ignoring the thought that "it would never happen to my family." There is no one solution that will fit all clients needs- each client must have a plan tailored to his/her individual circumstances and risks. However, in order that one can provide for the orderly succession of the ownership and control of one's assets on death, one must try and achieve this succession without a high degree of influence from persons that you do not want to benefit, as well as without the threat of interference from the courts. A) Mental Capacity, Powers of Attorney and Committeeship -Mental Capacity- testator must understand nature of act and it's effects-understand extent of property being disposed, comprehend and appreciate claims to which they should give effect P/A'S----- -Enduring use for bank account, land transfers, medical authorizations must trust P/A, P/A stands in fiduciary, good faith & full disclosure Representation Agreement Act- get P/a now cheap and quick to implement, Disadvantages - the P/A cannot be compelled to act, so principal is left unprotected if P/A refuses to act, or dies and no alternate appointed. Other disadvantages are that the P/A is rarely given guidelines how to best use discretion, and is not allowed to benefit the principal's family, unless the P/A specifically provides Committee- Court Application under Patient Property Act Appointing a committee, involvement of Public Trustee ct. Declaration that person is incapable of managing his person or affairs, or both , based on affidavits of two medical doctors Disadvantages - are that it takes several weeks to get court order, expensive, and subject to review of PT, and the investment restrictions on the committee under the Patients Property act
May be raised in circumstances surrounding the preparation of will, or calls into question the mental capacity of the testator, or shows that the free will of the testator was overborne by acts of undue influence or coercion the profounder of a will has to prove proper execution, knowledge and approval, and mental capacity where there are circumstances that are suspicious, rather then it being presumed that the testator knew and approved the contents of the will C) Undue Influence Hard to prove- must be physical or psychological persuasion that amounts to coercion - usually not many , if any, witnesses D) Interpretation Issues- DO NOT DRAFT YOUR OWN WILL ! Grey estate - home made will there are innumerable situations that arise re interpreting a will, especially one that is home-made- many legal words have very specific meanings, that are not known to lay people, or even notaries or some lawyers ie example of divide estate between 3 kids, and then gives one of 3 kids right to live in sole asset, the house, for life Have your will prepared by an experienced lawyer- you are dealing with all of your assets accumulated over one or more lifetimes, so why put it all at risk by trying to save a couple hundred dollars by doing your own will E) Wills Variation Act Spouses and children of a deceased have the right to contest an estate on the basis that the deceased parent or spouse failed to " make adequate provision for their proper maintenance and support " we are seeing a huge increase in these claims, especially by adult children who were disinherited applies to any assets owned by deceased , anywhere in the world, that passes under a valid will it is only the net value of the estate that applies, ie after payment of creditors an individual can choose to arrange affairs so as to avoid the provisions of the act, without fear of penalty for so doing, but because it is remedial legislation, it is not possible to contract out it the court has discretion to vary a will in any manner that it thinks just court may under s 2(3) of the act, may also take into account evidence of the testator's reasons for not making adequate provision for spouse or child contained in a statement in writing signed by the testator
Landmark case- long marriage- most of the assets in husband's name. Two children, one of whom the father hated since young child. Deceased gave his wife of 43 years a life estate in their home, disinherited the one son he hated, and left everything else to the other child. The SCC held as follows: the court has a broad discretion and should search for " contemporary justice "- the court discussed the legal obligations to spouse and children that may have existed while deceased was alive, as well as the moral obligations that also existed, and concluded that legal obligations take priority over moral claims courts will vary a will where the deceased has failed to meet his /her obligations by reference to legal and moral norms- the courts acknowledge one's freedom to dispose of assets as they see fit, but will interfere to vary the will where appropriate Court held that as a minimum, the widow should get what she would have received had the parties separated ie a legal duty, as well as a high moral obligation to support widow in the "extra years" after husbands death The SCC held that the widow receive the matrimonial home outright, a life estate in a revenue property, and the remainder on her death, to be divided 2/3 to the favoured son, and 1/3 to the hated son. The end result was that the test remained as it was - what should a judicious parent and spouse , not necessarily a kindly one, have to provide in order to discharge his marital and parental duty, having regard to both economic and moral considerations there are a number of BC cases in last year or two that have made it quite difficult for an adult independent child, not in need, to successfully argue and have will varied in their favour- this will especially be true when the parent has left a typed statement as to the reasons for the disinheritance.
4. ESTATE ADMINISTRATION ISSUES A) Joint Bank Accounts Most people are surprised to learn that joint bank accounts, which usually purport to have a right of survivorship, do not necessarily go to the survivor, if the monies on deposit were held for convenience only, and were not beneficially owned in part, by the surviving joint owner Example of housekeeper who deposited cheques into joint account The depositors intention as to who should receive the monies, done at the time that the account was opened is largely determinative, but often he intention is not known or can't be determined- B) Executors & Trustees Issues, Replacement and Remuneration
willing to act? sophisticated enough to do the job/ trustworthy enough- conflicts of interest or bias will executor be able to work with beneficiaries? cost in financial sense- executor is entitled to charge for services emotional concerns of beneficiaries not chosen always appoint an alternate executor Public Trustee is mandated to administer if no one else available- charges 7% on capital and 5% on income anyone can be an executor, but should be a trusted friend or relative, and in rare circumstances, a financial institution as they are inflexible and expensive Most complaints from beneficiaries are a) took too long to complete, b) kept in dark, c) too expensive largely a communication matter- general rule is executor has one year to distribute assets General Duties of Executors;
B) Protect estate assets, and inventory C) Notify creditors D) Keep comprehensive records of assets, debts, expenses E) Apply for Grant of Probate and carry out provisions of will F) Administer the estate, deal with creditors, beneficiaries, file tax returns, G) distribute assets to beneficiaries H) Defend ant court actions I) Pass accounts- either secure the consent of all interested parties, or alternatively, apply to court
Court decisions have held that he proper amount of remuneration depends upon: A) the magnitude of the estate B) the responsibility involved C) the time spent D) the skill and ability displayed E) the success achieved This amounts to a reasonable fee for services provided
A trust is not a separate legal entity, but instead is a relationship that arises where one or more persons having control over property, hold and manage it for the benefit of other persons or objects - commonly, one person (settlor) transfers property to another person/s to hold and administer the property on certain terms, namely the trusts, for the exclusive benefit of others, the beneficiaries - The three certainties: a) certainty of intention to create a trust b) the trust property must be clearly identified, as well as the entitlement of the beneficiaries in that property c) certainty of objects- the beneficiaries or purposes for which the trust property is held must be clearly identified Although the legal title to the trust property is held by the trustee, and the trustee has legal power to act re the property, the beneficiaries have an equitable or beneficial interest the trustee has fiduciary obligations to carry out the terms of the trust, to account, to act honestly, prudently, impartially, and avoid conflicts of interest trusts are frequently used in estate planning A) Constructive Trust Claims / Unjust Enrichment Claims Constructive Trust Claims- must show: A) an enrichment enjoyed by the defendant B) a corresponding deprivation suffered by the plaintiff C) the absence of any juristic reason for the deprivation/enrichment SCC Peter vs Beblow 1993- departure from previous cases, re common law spouses, and to a lesser extent, married couples, that assets/ estate will be divided based on not just financial contribution, that had previously been the case, but on domestic contribution as well - law has been applied to same sex relationships Constructive trusts claims have become and will increasingly become more and more prevalent Unjust enrichment is a similar type of court remedy to the constructive trust- essentially asking courts for relief based on fairness and equity historically applied to recover back money, which in justice ought not to be kept , but now seems to be at the heart of a claim for constructive trust- ha also been called restitution B) Breach of Trust -
PART THREE
Administration Act then apply- assets do not go to Government- they go to next of kin as per a formula in the Act ie first $65000 to wife, if spouse & child, then !/2 to spouse, if spouse and children, then 1/3 to spouse, if no spouse or children , then to parents, if none , then to siblings, then nieces, nephews and so forth c/law spouse gets so much of the estate as the court sees fit- unpredictable Disadvantages
Advantages-
2). Will : A) Requirements for a Valid Will,
B) Common Mistakes
C) Executors- Choosing the Executor, and their Role
Advantages-
Disadvantages-
Advantages clearly out way disadvantages 3). Jointly Owned Property : many types of property can be jointly owned ie real estate, bank accounts, bonds, shares in a company, motor vehicles etc- Esme example when two or more people own something as joint tenants, then on death of one, the survivor(s) automatically become entitled to the deceased's share- nothing to do with marriage, only the way it is registered- produce death certificate- very straightforward A) Joint Tenancy vs Tenancy- in- Common unless pty is specifically designated in it's registration that it is J.T., then is presumed to be tenant - in -common- no right of survivorship- goes tom one's estate, not surviving JT's B) Beneficial vs Legal Title Beware in law that the purported registered owner of an asset may not in reality be the true " beneficial owner "- ie property registered in trust, or effect of marriage laws re family assets, was asset register only for convenience? Property will be presumed to be held by a recipient of a transfer when it was done for minimal or no consideration- a resulting trust is not presumed between spouses, common-law scouses, parent to child, o step children/parent- presumption of advancement applies instead-any presumption can be rebutted by evidence
Advantages-
Disadvantages-
E) Joint Ownership Agreements If one intends to own assets jointly with others, so as to create a right of survivorship, then the registration of the assets must be carefully prepared to clearly designate same- can be done with written agreements 4). Trusts : classic definition is " a trust is an equitable obligation, binding a person called the trustee, to deal with property over which he has control( the trust property- for the benefit of persons called the beneficiaries or cestuis que trusts, of whom he may himself be one, and any of whom may enforce the obligation- it is a property holding or property -holding and administration device
A) Advantages and Disadvantages of Using Trusts Advantages:
B) Using Trusts to Avoid Wills Variation Actions -under WVA , only assets that form part of the deceased's estate are subject to a claim- thus if assets are transferred to an inter vivos trust, they will not form part of the estate, and thus will to be subject a claim under WVA C) Using Trusts to Avoid Family Law Claims A transfer to a discretionary trust prior to the marriage may be an effective way to protect assets against a claim under FRA, but if the transfer happens after marriage, and especially if asset has been used for a family purpose, then will be subject to a tracing order
family trusts ae trusts which are used for a family as opposed to a commercial purpose, and are typically used in the family environment as a means to control the division of family assets, or income tax, for family members- a settler may wish to pass assets to the family, but be hesitant to give them to the family outright- 5). Insurance :
B) Advantages & Disadvantages of Insurance Advantages
No disadvantages to speak of. 6). Pensions and RRSP's :
C) Family Law Consideration D) Advantages and Disadvantages to Designations of Beneficiaries
Basically the same as insurance- the asset passes outside the will as a matter of contract- allows control, cheap & quick, can't be attacked by WVA or creditors- the advantages out way the disadvantages
One of the most effective ways to transfer wealth is to give it away, irrevocably. If one does this then it should be properly documented with a deed of gift, or runs risk of being challenged later with arguments of presumption of advancement or resulting trust A) Advantages and Disadvantages of Gifting Your Assets Advantages-
Disadvantages
Typically when there is a great disparity in wealth, clients often wish to plan their affairs so that in the event of marriage breakdown, their assets are insulated from claims of their spouse under Family Relations Act/ Divorce Act, or Estate Administration, or Wills Variation. Wealthy parents often wish to provide for their children, but not expose the assets to claims by spouse on a marriage termination. Two scenarios- avoiding claims from divorce, and avoiding claims through death S 48 Family Relations act provides that agreement may be entered into prior to or during a marriage, and to take effect on date of marriage, or agreement, whichever is latter-
A) How Effective Are They ?
It is not possible to contract out of the provisions of the Wills Variation Act, but under s 2(3) of the act, the court may look at a statement in writing signed by the testator as to the reasons why a bequest was or wasn't made- thus court may take agreement into account-
D) Avoiding Claims Under the Estate Administration Act
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