Wills and Estates Practice Basics 2017 Monday, March 27, 2017 THE INITIAL MEETING AND INSTRUCTIONS Mary-Alice Thompson, C.S., TEP Cunningham, Swan, Carty, Little & Bonham LLP There are a number of helpful resources for the actual preparation of wills and powers of attorney, and the estate planning that precedes it. The focus of this paper, however, is on all of the things that surround the actual drafting of wills and powers of attorney, starting with the first contact from a potential client. The emphasis is principally on practising defensively, but the best way to practise defensively in this area of law is to ensure that you pay careful attention to your clients and their needs. Of course, you also need to be able to make a living in your practice, so there is also an emphasis on practising efficiently at every step from that first call to the storage and retrieval of documents. Perhaps the most useful tools are checklists. At the end of this paper, you will find some resources for checklists that have been prepared for practitioners in this area.
Use one of them, or create you own, but wherever you source your forms, make sure you use them. You can use a single checklist, or a series of checklists dealing with the following issues: • Information provided to a client in advance of the meeting in order to assist them in preparing • Information about the client’s personal circumstances and assets • Instructions for the disposition of the estate and the preparation of wills and powers of attorney Consider, in addition, having a “soup to nuts” procedure written down so that not only you but your staff and any newcomers to your office will be able to follow it. Apart from taking information about the client and taking instructions, there are number of other issues to be dealt with either before or during the first interview: 1 - 12 • Verifying identification. You may have assumed that since, as a part of the information gathering process in a standard wills interview, you have identified your client adequately; that is, you will have the client’s name, address, telephone number, and occupation. You should, however, also verify identification. Although a typical will drafting and estate planning file will not in itself trigger the threshold for a requirement to verify identity,1 you may later be asked whether you verified the identity of the client. For example, if a Continuing Power of Attorney for Property is used subsequently on a real estate matter involving title insurance, the title insurer will routinely ask whether the lawyer who prepared the Continuing Power of Attorney for Property verified the identity of the donor of the power. Clients are well inured to the idea of producing photo ID and are unlikely to object to being asked for it. Keep a photocopy or scanned copy of the identifying documents you review. • Conflict searches. While conflicts may not often occur in wills matters, it is inadvisable to rely on your memory to pick up the possibility that, for example, your potential client is the subject of a debtor’s examination by one of your other clients or a client of the firm. • Compensation agreements. Where the client has decided to appoint a trust company as executor or as attorney under a Continuing Power of Attorney for Property, compensation agreements may have been signed before you begin the process of taking instructions and drafting. Make sure you obtain copies. • Timetable for process. My practice is to set an appointment date at the end of the first meeting with the client. Not all practitioners do this, but it is, I believe, very important to keep the process of preparing wills and powers of attorney on schedule.
There are, of course, cases where failure to prepare a will promptly has resulted in the solicitor being found negligent, but even where there is no reason to anticipate an emergency, this is work that should not sit on your desk for months.2 Both you and the client will forget the 1 According to the Law Society’s on-line notes, you are required to obtain verification of identity “When you are retained to provide legal services to a client and you are involved in a funds transfer activity, that is, when you engage in or give instructions in respect of the receipt, payment or transfer of funds.” 2 There have been many cases, over the last 30 years or so in which lawyers have been found negligent for failure to hear a will in a timely fashion. See Martyn Frost, With the Best Will in the World:
Negligence in Will Preparation (London: Legalease, 2000). 1 - 23 exact instructions or the rationale behind them, and delays inevitably mean lost time which cannot fairly be billed to the client. • Retainers. You need to inform your client of certain parameters, and have their signed acknowledgement in a formal retainer. Some practitioners send the retainer by mail to clients following the first meeting. Unless you have a particularly complex retainer, it may be possible to have it signed by the clients at the end of the first meeting. See the comments below on what should be included in a retainer agreement. This is an area where it is still not, to the best of my knowledge, common to request cash retainers, perhaps because a solicitor who has just taken all of the asset information from the clients well placed to assess whether this is necessary. Nevertheless, a signed retainer is advisable. a. Questions for your client questionnaires New clients (and returning client, depending on how recently you have seen them) should be prepared for the first meeting, in order to get the best value from the time you will spend together. At the very least, a new client should be asked to bring: • Full names, addresses, and dates and places of birth for potential beneficiaries (spouses, children, grandchildren, etc.). Names are required for identification purposes and middle names are especially helpful where families tend to reuse the same name through generations. Dates of birth are helpful in identifying when beneficiaries are minors or will achieve a specified age, and places of birth are helpful in identifying citizenship issues or exposure to US tax for those who may be US persons. • Names and contact information for professional advisers (accountant, financial planner, family doctor). Identifying other advisers for the client is helpful, especially where they may be involved in some of the planning. While a family doctor is unlikely to be involved in planning, he or she may be called upon if capacity issues arise. • Copies of any existing wills and powers of attorney. It is helpful to review earlier documents, especially to know whether there are radical changes from previous 1 - 34 dispositions, which will be a red flag. Where there are departures, you will want to explore with the client the reasons for the changes. • Copies of any domestic contracts or court orders. Where the client has had prior relationships, there may be obligations to dependents. For example, if a separation agreement creates a continuing obligation to maintain life insurance for the previous spouse, you will need to be careful about changing beneficiary designations. Where there are dependants, the plan will have to make appropriate provision for them. • Copies of shareholder agreements. The arrangements in a shareholder agreement for the disposition of shares of a private corporation, or how buyouts are to be funded will impact the plan. You will need to ensure that the shares are not left in contravention of the shareholder agreement. • Copies of trust deeds. If the client is a trustee or a beneficiary under a trust, you will need to know what provisions are made for the death or incapacity of the client. The client may, for example, have a power of appointment which should be exercised by will. • Recent investment statements. Clients are often unsure exactly how they hold their assets. Obtaining recent statements will help to clarify which accounts are, for example, held jointly with the spouse, and which accounts are registered or unregistered. It may also allow you to make a rough estimate of the potential for capital gains tax on an account where assets have appreciated. • The names of the beneficiaries under RRSPs, RRIFs, TFSAs and life insurance. Clients are often unaware of the fact that a will does not change beneficiary designations unless this is done specifically. It is not uncommon for a client to have created a mosaic of fairly random gifts to family members as they have opened new accounts and named various family members as beneficiaries.
Part of the planning process will be to rationalize the total estate, and to use beneficiary designations prudently to avoid claims against the estate, to convey discrete benefits, and to reduce Estate Administration Tax. 1 - 45 • Information on the title to any real estate (a deed if possible). It important to determine that your client actually owns the real estate they are dealing with – as opposed to owning shares in a corporation that owns the real estate. Having a deed will also give you a good idea of any potential conveyancing issues and whether the property can be passed through a secondary (non-probate) will. You may also wish to prepare the client for the fact that the first interview may be lengthy. Even with well-prepared clients find a first interview usually takes an hour or more. Clients also need to understand your role: you are not simply a scribe, as many – even quite sophisticated -- clients believe. You are an adviser, and that means that you will need to advise on the operation of the law in their situation. It seems fairly obvious, but that means you must understand both the law and the client’s situation. Taking instructions and note-taking Your main tool for understanding the client’s situation is your checklist or questionnaire. For the most clients, who are clearly capable, it can be a significant saving of your time, and an opportunity for them to begin organizing their thoughts, if they are provided in advance of the first meeting, with the questionnaire. The purpose of the questionnaire is to provide the information you will need as background to estate planning. It also serves as a reminder to ask questions that may escape in a more free-flowing interview.
It should be comprehensive, but you should also be prepared to explain the relevance of any question that you ask. Generally, the questions you ask will be about the client or clients, their family, and their assets. You will want to probe for complications – are there blended families, former spouses, children who have no contact, informally adopted children, predeceased children, incapable beneficiaries, insolvent beneficiaries, non-resident beneficiaries, clients or beneficiaries who may be considered U.S. persons, hostile family members, charitable beneficiaries? Each of these factors may require a particular set of planning provisions or clauses in the documents you are about to draft. Similarly, with the assets. You will need to know not only what the client owns, but how it is held – solely, jointly with one or more others, through a corporation or a trust – its current 1 - 56 market value and (for capital assets) when and for what it was acquired. You will need to understand the corporate structure of family businesses, and look at the terms of existing trusts. Your checklist should be revised regularly to respond to changes in the law.3 For example, if you do not know when real estate was acquired, you cannot advise on the possibility of sheltering its value from Estate Administration Tax. If you have not asked whether the client or the client’s children have had fertility treatments, you may not be able to advise about the impact of the posthumous conception provisions in s. 1(1) of the Succession Law Reform Act.4 If you ignore ownership of bank accounts, you cannot advise about the impact of the presumptions under Pecore.5 Substantiating capacity and the absence of undue influence The questions you ask your client in the course of preparing a will are the same questions that will establish capacity. Therefore, in situations where capacity may be an issue, you should complete the questionnaire at the meeting, and ask probing, open-ended questions in order to test capacity.
You should always, of course, have file notes, but where there is any indication that capacity may be an issue, you must ask more probing questions and take especially meticulous and complete notes. Your notes are not only the guidance you will need for the work you have to do in drafting for the client, but may also be critical evidence on any challenge to the documents. In particular, you will want to establish that your client had capacity to make the will and powers or attorney, if you are preparing these. You will also want to record the evidence to rebut any suggestion of undue influence. 3 See Appendix A for one example of a “Client Intake” questionnaire. 4Effective the 1st of January 2017, a child, for the purposes of the SLRA, now may includes a “child conceived and born alive after the parent’s death”. Succession Law Reform Act, R.S.O. 1990, c. S.26, s. 1(1). 5 Pecore v. Pecore,  1 SCR 795, 2007 SCC 17 (CanLII). 1 - 67 The classic test for capacity is found in Banks v Goodfellow,6 and elaborated in a number of subsequent cases, Hall v Bennett Estate being a good example.7 To have capacity to make a will, one must: • understand the nature and effect of a will; • recollect the nature and extent of his or her property; • understand the extent of what he or she is giving under the will; • remember the persons that he or she might be expected to benefit under his or her will; and • where applicable, understand the nature of the claims that may be made by persons he or she is excluding from the will. It is possible for a will-maker to suffer from delusions, and still make a valid will, provided that the delusion does not impact the disposition.8 The cases where wills are challenged repeat that while a drafting solicitor is not a guarantor of the will-maker’s capacity, he or she is a trained and impartial observer. Detailed notes of the demeanor and answers of a will-maker will carry substantial weight, but the questions must be pointed, especially where there is a possibility of undue influence. Consider, for example, Walman v Walman Estate, where the will was rejected by the court. 9 The drafting solicitor appeared to have followed standard practice and, in the court’s own words, he “did several things ‘right’ in connection with this interview. He interviewed [the client] in [his wife’s] absence. He kept good notes. And he asked questions that, facially, comport with the requirement of 6 (1870), LR 5 QB 549, applied by the Supreme Court of Canada in Leger v Poirier,  SCR 152,  3 DLR 1. 7  OJ No 1827 (CA). 8 See Ian Hull and Dr Kenneth Shulman, “Personality Disorders and Their Impact on Testamentary Capacity,” 2014 LSUC E&T Summit, Toronto; C. Wagner and N. Herrmann, “Insane Delusions: Has the Test Been Expanded?” (Toronto) LSUC, Estate Litigation Practice Essentials, 2012). 9  OJ No 179, 2015 ONSC 185. See also Stevens v Crawford 2000 ABQB 5 (CanLII), additional reasons at Stevens v Crawford. 2000 ABQB 305 (CanLII), aff’d Stevens v Morrisroe, 2001 ABCA 195 (CanLII), 281 AR 201, 202 DLR (4th) 577; leave to appeal refused 2002 CarswellAlta 378 (SCC). See also Scott v Cousins,  OJ No 19, 37 ETR (2d) 113 (Sup Ct) and Smith Estate v Rotstein,  OJ No 1527, 2010 ONSC 2117, 56 ETR (3d) 216, para 117 (Sup Ct).. 1 - 78
determining whether the testator understood the extent of his assets.” The court went on to find, however, that in the circumstances “he needed to go further than he did,” and should have asked about the wife’s means, what had already been gifted to her, and the reason for his disappointment with his sons, even though they were not, in the end, cut out of the will. Capacity is nuanced, variable, and not always readily apparent.10 Medical diagnosis may be helpful, but remember that family physicians are mostly neither able nor willing to opine on testamentary capacity; and capacity to make a will is a legal, not a medical matter. While it may make sense to obtain an assessment from a qualified physician in appropriate situations, you will need to consider: • There is a presumption of capacity at common law. The executor of a properly executed formal will made by an adult is entitled to rely on this presumption.11 • Capacity to make a will is not the same as capacity to make a power of attorney, or capacity to undertake any number of other legal acts such as marrying, contracting, managing finances, or making decisions about personal care. • A diagnosis of a dementing disease such as Alzheimer’s disease is not the equivalent of incapacity. A newly diagnosed Alzheimer’s patient may well have capacity and a real need to make a will and powers of attorney.12 • When a client is very elderly or infirm, has been seriously ill, or under severe pressure from family, you must be alert to the likelihood of capacity problems or undue influence and take appropriate steps to establish the “righteousness” of the will. The gold standard here is a full assessment by a trained geriatrician or other specialist physician. 13 Age, however, is not in 10 See Brian S Schnurr & Kenneth I Shulman, Law Society of Upper Canada Special Lectures 2010: A Medical-Legal Approach to Estate Planning and Decision Making for Older Clients (Toronto: Irwin Law, 2011). 11 Vout v Hay, 1995 CanLII 105,  2 SCR 876, 125 DLR (4th) 431, 82 OAC 161. 12 See Stevens v Crawford,  AJ No 21, 2000 ABQB 5. 13 Key & Anor v Key & Ors,  WTLR 623,  EWHC 408,  1 WLR 2020 (Ch).
In this case, the solicitor made a will for an 89-year-old man whose wife of 65 years had not been dead a week, and which changed dramatically the previous disposition. The judge was highly critical of the lawyer, citing (among other failings) his lack of file notes. Key also found that depression is a factor that can be taken to impair capacity. We are not aware of any case in Canada adopting the reasoning of Key. 1 - 89 and of itself an impairment, and it is ageist and insulting to start by assuming that an elderly client lacks capacity.14 • If you ask for an opinion from a physician who is not a specialist, a covering letter setting out the legal test for capacity and some background may result in a more helpful response. • Try to arrange your meetings with a client whose capacity may be impaired at a time and place when they are likely to be at their best. Beware, however, of relying on “lucid intervals” which in those who are truly impaired likely last for far too short a time to complete will instructions.15 • If your client clearly does have capacity, the assessment may be useful if you anticipate a challenge to the will, but you should not make a habit of sending obviously competent clients for medical assessment. • Do not subject a clearly incapable client to an unnecessary, expensive, and humiliating process of an assessment. It is always an option to decline a retainer.16 • A client who is reluctant to undergo an assessment may be persuaded of the value of the process by understanding that the purpose is not to undermine him or her, but to create solid evidence of capacity to bolster the will if it is challenged. • A client who is reluctant to pay for your time in dealing with these issues should be encouraged to think of your duties as falling into two categories: 1) the preparation of documents, which you might consider billing at a flat fee, and 2) the advice and documentation necessary to protect the will, which you bill at an hourly rate.17 14 “I should add . . . that there is plainly no duty upon solicitors in general to obtain medical evidence on every occasion upon which they are instructed by an elderly client just in case they lack capacity. Such a requirement would be insulting and unnecessary.” Thorpe v Fellowes Solicitors LLP,  EWHC 61,  EWHC 61 (QB),  PNLR 13, (2011) 118 BMLR 122. 15 See Kenneth Shulman, et al, “Cognitive Fluctuations and the Lucid Interval in Dementia: Implications for Testamentary Capacity” (2015) 43(3) J Am Acad Psychiatry Law 287-92. 16 Hall v Bennett Estate, 2003 CanLII 7157, (2003) 64 OR (3d) 191 (CA), found that the solicitor who was called at the last minute to the deathbed of the deceased and concluded that he was incapable was entitled to decline the retainer in the circumstances. 17 I thank John Poyser for this ingenious suggestion of a way to explain the billing on a complex estate planning file. 1 - 910 Undue influence is not the same thing as lack of capacity, but the two are related. As a person’s capacity declines they may be less able to make good judgments about who to trust or the veracity of what they or told, and less able to resist suggestion. Where there are factors that may suggest the possibility of undue influence, the Joint retainer letters and joint retainer documents In any retainer, you will want to make clear what you are being asked to do, the payment terms, the arrangements regarding delegation, the terms on which information is gathered and retained, etc.
In addition, with will clients, you will frequently have to deal with conflicts and joint retainers. If you act for a couple to prepare their wills — and this is perhaps the commonest situation for a wills practitioner — you will most likely have a joint retainer.18 The Rule of Professional Conduct include provisions dealing with joint retainers, one of the most vexing problems in the preparation of wills (and powers of attorney) for a couple. Where there is a joint retainer to prepare a will, the lawyer must inform the clients that information will be shared, and that he or she cannot prepare different wills later without the other partner’s agreement, unless the couple has separated or one of them has died.19 Joint retainers need to be approached with care. For couples in a stable first marriage with children in common, the risk that things will go awry may be relatively low. But you must ask the questions to discover whether there are factors that would make a joint retainer inappropriate. Does either of the couple have children from a prior marriage, and if so do they understand the impact on their children of a new marriage by a surviving spouse? Do the children get along? Is there a significant difference in net worth between them? Do they have a – mistaken - belief that the wills they are making cannot be re-made without the consent of both of them? Can you safely advise them both? If you do accept joint retainers, it is especially important to use a retainer that 18 The following circumstances would indicate a joint retainer: • the parties attend at the lawyer’s office at the same time; • the parties meet with the lawyer together; • the parties appear to have a common goal and instruct the lawyer together on achieving that goal; • the wills are executed at the same time; • one account is rendered to both clients; • a single reporting letter is usually prepared for both clients. 19 https://www.lsuc.on.ca/with.aspx?id=2147502071#ch3_sec4-5-joint-retainers. 1 - 1011 clearly sets out the terms on which you are acting. While this may be included in your reporting letter, you must also explain the joint retainer at the outset, according to the Rules.20 It is also important to distinguish acting on a joint retainer from preparing mutual wills. You do not want to find yourself faced with the claim that the wills you prepared for a couple were mutual wills — irrevocable without the consent of the other party during their joint lives, and unchangeable at all after the death of one.
Because clients are often unsophisticated about this, you need to make clear that you are not preparing mutual wills, that the wills are not set in stone, that there is no contract between them not to change the wills, and that either of them can make changes before or after the death of the other partner. The best way to defend yourself from a claim of negligence in this regard is to be clear and to place this information in the retainer. You will also want to use your retainer agreement to set out any other information that your client needs to know such as: • Your fees and the basis on which they are calculated, what you charge for disbursements, the period of time for payment of the account, etc. • Any information regarding electronic communication. If you plan to send drafts or any other information by email it is advisable to have the client’s consent included in the retainer. • If you plan on sharing information with anyone other than the clients, include consent to do this in the retainer agreement. This is particularly important where you are working with other advisers such as trust companies or accountants (see the comments below on working with third parties) or if you will need to have discussions with family members. Managing the client’s expectations 20 3.4-5 Before a lawyer acts in a matter or transaction for more than one client, the lawyer shall advise each of the clients that (a) the lawyer has been asked to act for both or all of them; (b) no information received in connection with the matter from one client can be treated as confidential so far as any of the others are concerned; and (c) if a conflict develops that cannot be resolved, the lawyer cannot continue to act for both or all of them and may have to withdraw completely. 1 - 1112 Your clients will have different levels of familiarity with what it is, exactly, that you do. It is not unusual for client to believe that all they need to do is tell you who they intend to make beneficiaries, and they may react negatively to the extensive questioning that you are required to do in order to act competently. Here are some common misunderstandings, and suggestions about how to deal with them: • Myth #1: It is not necessary for the lawyer to meet with the client. In fact, the Rules of Professional Conduct require you to meet at least once with any client for whom you are drafting wills. In emergency situations, you may take instructions over the phone, or even take instructions from a third party, but you must verify capacity in person, and confirm the identity of the person you are dealing with, and your instructions. • Myth #2: It is not necessary to know anything about parties who will not receive anything in the will. In fact, it is especially helpful to know a great deal about any family member who would expect to be in the will and is being omitted, in order to establish that the omission is not a matter of lack of capacity. While the explanation may or may not find its way into the will, the solicitor’s background notes may be very helpful if the will is ever challenged.21 This is also an area where solicitor’s advice may be helpful in strategizing how to reduce the likelihood of challenges. • Myth #3: Solicitors should not give advice on disposition. In fact, one of the most helpful things a competent solicitor can do is discuss with the client the impact of a proposed disposition. This is especially true when the client wishes to make charitable dispositions or is concerned about the tax impact on the estate. It is often helpful to explain the pros and cons of a legacy as opposed to a share of residue, whether legacies can actually be paid on the first death of a couple, or the options for disposing of personal effects. • Myth #4: It is not necessary to know about previous wills. For a capable client who is clearly intent on changing prior dispositions, this may be true, but for some clients, especially where there is a radical change in the disposition or may be questions about the capacity of the will-maker, reviewing an earlier will is important. 21 See Spence v. BMO Trust Company, 2016 ONCA 196 (CanLII). 1 - 1213 • Myth #5. Lawyers work alone. In fact, in the context of estate planning, lawyers are frequently part of a team of planners and advisers. Clients may find you on their own or a through family member, but they are often referred by other advisers. The risk for a lawyer who depends on these referrals is forgetting that loyalty is owed to the client first. While advisers or family members may participate in part of an interview, actual instructions should be given directly by the client, and without interested parties present.22 This does not mean, however, that you cannot discuss issues with other advisers or family members. Consider what each of them might legitimately bring to the planning process. Working With Third Parties You and your client can benefit from the involvement of family members, financial planners, and trust companies, provided you abide by the basic rule of ensuring that your instructions come from the client, and are careful to share information with other parties only if the client authorizes you to do so, and only to the extent that is appropriate. Family members are often deeply involved in the planning process, and may even have initiated it. You will need to be wary, of course, of any family member who appears to have a disproportionate influence on your client, especially if that family member is a beneficiary or gains by the changes being proposed. Nevertheless, if your client is clearly dependent on advice and direction from a family member and wants them to be involved, you can incorporate the involvement of family into your planning meetings provided to take some of the following precautions: • Confirm with the client that you are authorized to speak with family members, and if a family member offers to accompany the client into a meeting, ensure that your client is given an opportunity to say no. • Family members may be present through the portion of the meeting that involves taking information about assets, especially if capacity is not seriously in doubt. If there are capacity issues, however, they may not be apparent to you if the family member is 22 See Re Worrell,  1 OR 184, 8 DLR (3d) 36 (Surr Ct), for a judicial view of the solicitor’s obligation when taking instructions. 1 - 1314 jumping in to answer questions consistently. This interference may arise from protectiveness rather than avarice, but you may need to ask the family member to let the client speak for him or herself. • Even if a family members are present for a portion of the meeting, and are given an opportunity to ask questions, they should be excluded from the portion of the meeting that involves the actual giving of instructions. • Changes that benefit one family member, who is leading the process to effect the changes, are a red flag for undue influence. This does not mean you cannot make a will for your client, but you must go further to establish the “righteousness of the transaction”. This will mean: - Ensuring that you confirm instructions; - Probing as to the reasons for the disposition; - Reviewing carefully the impact of the decision ; - Ensuring the client has adequate capacity; - Making sure instructions are given in a context where the client can express himself or herself freely; - Offering alternatives, such as a “secret” will not to be shown to family, or a condition on a gift that certain service be provided; and - Asking the same question in several different contexts and forms, to ensure the client is not simply repeating someone else’s word by rote. • Family members may have conveyed will instructions by telephone, especially the willmaker is unwell or in hospital. In this case you will need to have a meeting alone with the client, if necessary just before documents are signed, to confirm the instructions you have been given. Trust companies provide executor services for a fee set by agreement in advance of the execution of the will. Trust companies no longer draft wills in-house, so they will need to refer the file to 1 - 1415 an outside lawyer, and are thus a good source of referrals. As executors, they require particular clauses to be inserted in wills where they are appointed, and they will review draft documents for you. They will also act as attorneys under continuing powers of attorney for property, and require a compensation agreement for this purpose as well. Although an employee of the trust company may have met with the client and may even have taken instructions to forward to the drafting lawyer, it is important to confirm both your retainer and the instructions directly with the client, even if you do so only by telephone. Accountants, financial advisers, gift planners, and bankers often initiate the will-making process. Financial advisers may have long-standing relationships with clients and may be familiar not only with their assets but with their family and the businesses. Since they have regular meetings with clients, they may be the ones who have insisted on the clients seeing you in order to have wills made. Large and complex estates will almost certainly need an accountant to assist in the making the plan. Accountants may, in fact, prepare a planning letter detailing what steps the client should take, including the provisions that should be included in wills and powers of attorney. This can be extremely helpful, although you must, of course, assess for yourself the appropriateness of the plan and do your own drafting. Most accountants are happy to discuss with you the pros and cons of the options put to the client. Planning For Second Relationships Clients who have children from a previous relationship and a new spouse have a particular set of issues to be addressed. They have a legal obligation – and likely a desire – to support the new spouse. They will also, however, want to ensure that some portion of their estate passes to their own children rather than having the whole of a joint estate passed to the children of the spouse. You will have to explain that if the surviving spouse remarries, the wills are revoked and the intestacy rules will result in the whole of the joint estates passing to the new spouse and the surviving spouse’s children, leaving the children of the deceased spouse disinherited. In truly blended families, the couple may each regard the other’s children as his or her own. If the couple has a cohabitation or marriage contract, planning in a second marriage may be easier, but even here there may be issues since the efficacy of such contracts made 20 or 30 years ago in 1 - 1516 defending against claims for support may be questionable. If they do not have a cohabitation or marriage contract, they are probably not willing to undertake the exercise of preparing one late in their relationship, especially given the potential costs, and the possibility of creating acrimony between them. There are generally three broad frameworks for planning in this area, one of which, possibly with some modifications, is usually acceptable for couples in second or later relationships. a. Mirror wills. In this arrangement, each of the parties agrees to leave everything to each other, and both parties will leave their joint estate to their children equally (or in some agreed proportion) on the death of the second to die. Clients who make this arrangement should understand the possibility that after the death of one of them the survivor may remarry, the will be revoked, and (if a new one is not made so that the survivor dies intestate) the estate will be divided between the new spouse and the survivor’s children. Also possible is that the surviving spouse will become estranged from step-children, and make a will leaving everything to his or her own children. The last scenario has resulted in a number of cases where it is alleged that the original wills were, in fact, mutual wills.23 The doctrine of mutual wills, of course, holds that where a couple who have made essentially mirror wills intend to bind themselves to maintain the agreed disposition, after the death of one of them, the survivor cannot change his or her will. An attempt to do so will cause equity to impose a trust on the executor of the new will to ensure that the intention under the original mutual wills is honoured. Clients often like the idea of mutual wills, but they are, in fact, very difficult to draft effectively. If you undertake to do them, at the very least they should be paired with a full-fledged domestic agreement, which is likely to add significantly to the time and 23 See, for example, Rammage v Estate of Roussel, 2016 ONSC 1857 (CanLII), where the court imposed a trust, even where there was “no direct written or oral confirmation that the 1998 wills were mutual.” For a sense of the complexities, see TG Youdan, “The Mutual Wills Doctrine” (1979) 29 UTLJ 390; Julie Cassidy, “Case Note: Osborne v Estate of Osborne; Equitable Agreement or a Contract in Law: Merely a Matter of Nomenclature?”  MULR 27(1) 218; LA Sheridan, “The Floating Trust: Mutual Wills” (1977) 15 Alta L Rev 211; JDB Mitchell, “Some Aspects of Mutual Wills”  14 Mod L Rev 136; Albert H Oosterhoff, “Mutual Wills” (2008) 27 ETPJ 135; Mary-Alice Thompson, “Mutual Wills and More” in Beyond Will and Estate Planning Essentials (Ontario Bar Association, Continuing Legal Education Program, 10 May 2011). 1 - 1617 cost of will preparation. Since the attraction of the “just trust me” will is frequently its simplicity, venturing into the preparation of mutual wills is unlikely to appeal to clients. Clients who wish to do mirror wills in a second relationship should be advised of the risks, and your file should note that as part of your interview, and include it in a reporting letter. It may even be worthwhile putting a specific statement in the wills themselves to say that they are not intended to be mutual wills. b. Division between spouse and children. A client with a spouse who plans to leave his or her estate to children of a first marriage will need to be advised about the legal obligations owed to a surviving spouse, and the rights of a surviving spouse to either division of property or support. Where there is no domestic agreement, the estate risks claims being made by a surviving spouse. Equalization claims may be relatively easy to quantify. In a long-standing relationship where the assets have been openly shared, the client can probably make a reasonably reliable estimate of the value of an equalization claim. It is, then, possible to consider using gifts outside of the will – life insurance designations, pensions, and beneficiary designations on registered retirement savings plans are registered retirement income funds – to discourage equalization claims. The provisions of the Family Law Act dealing with how such gifts are taken into account are relevant. Essentially, the Act holds that where a surviving spouse has elected to take an equalization, but has received or is receiving life insurance, pension benefits, or property by right of survivorship, not only is the value of those benefits set off against the claim, but the estate may actually recover any excess.24 24 Amounts to be credited (6) The rules in subsection (7) apply if a surviving spouse elects or has elected to receive an entitlement under section 5 and is, (a) the beneficiary of a policy of life insurance, as defined in the Insurance Act, that was taken out on the life of the deceased spouse and owned by the deceased spouse or was taken out on the lives of a group of which he or she was a member; (b) the beneficiary of a lump sum payment provided under a pension or similar plan on the death of the deceased spouse; or (c) the recipient of property or a portion of property to which the surviving spouse becomes entitled by right of survivorship or otherwise on the death of the deceased spouse. (7) The following rules apply in the circumstances described in subsection (6): 1 - 1718 In addition, since registered plans like RRSPs and RRIFs are subject to full taxation in the estate unless they are transferred to a surviving spouse (or disabled dependant), there is very good tax planning reasons to make a spouse the beneficiary of these plans. Provided the amount of the plans is – and is likely to remain25 – roughly equivalent to the value of an equalization payment, designating a surviving spouse as a beneficiary may allow a client in a second marriage to make a will leaving everything to his or her own children. Where registered plans and life insurance are not available, or are in adequate, the spouse may have to receive a legacy or a share of residue, in order to ensure that he or she is not inclined to make an equalization claim. A will-maker who is married must also make adequate provision for his or her spouse, or who will otherwise have a claim under Part V of the Succession Law Reform Act for support against the estate. In many cases, where provision has been made to ensure that there is no equalization claim, the result will be that “adequate provision” has been made for the spouse. There may be some couples, however, where this is not the case. The willmaker will need to consider what the needs of the surviving spouse will be, and what will be required to ensure that he or she has a standard of living more or less equivalent to what was available during their joint lives. Will-makers may have to be reminded that, although they may wish to leave an inheritance for their children, they have a legal obligation to support a spouse. c. Spousal trusts. While recent changes in the Income Tax Act have made spousal trusts for less attractive as a tax-planning vehicle, they continue to be extremely useful as a device that allows a will-maker to make provision for a surviving spouse but preserve capital for eventual transmission to his or her children. The creation of a spousal trust does, 1. The amount of every payment and the value of every property or portion of property described in that subsection, less any contingent tax liability in respect of the payment, property or portion of property, shall be credited against the surviving spouse’s entitlement under section 5. 2. If the total amount of the credit under paragraph 1 exceeds the entitlement under section 5, the deceased spouse’s personal representative may recover the excess amount from the surviving spouse. 25 Once RRSPs are converted to RRIFs, of course, they begin to decline in value, so if they are being used as a disincentive to a claim for equalization, the client may need to look at some other source of funding such as life insurance to prevent the claim. 1 - 1819 however, require that the will-maker have sufficient assets in his or her own name to fund the trust. In a common arrangement – even in second or later marriages – a couple may hold all of their assets either in investments with a designated beneficiary, such as pensions and registered plans, or in jointly owned assets like real estate or investment accounts. The result is that on the death of the first of the couple, there is nothing in the estate proper. This is a good illustration of why it is important to understand the structure of assets for planning purposes, since if you draft a will with a spousal trust for a client who holds assets in this manner, the result will be that the trust is utterly useless for its intended purpose. It clients do wish to use spousal trust they must either hold their assets separately or consider taking steps to divide them. Clients may be resistant to changing title on assets, especially if there concerned about simplifying their arrangements. Nevertheless, a welldrafted spousal trust that allows for income to be paid to the surviving spouse, and possibly capital as well with some parameters, will both ensure that adequate provision is made for the surviving spouse, and provide for the preservation of capital for the children following the spouse’s death. It is important to take some time considering who is best to be trustee of the trust. Although the will-maker may in be inclined to make the spouse the sole executor and trustee, this is not always wise. Since the trustee will have the power to make discretionary decisions about capital distributions, the children may feel that this is putting the wolf to mind the sheep. Moreover, if the spouse does not keep especially good records, it may be difficult for a successor trustee to determine what has been done in the course of a long standing trust. Putting the children on alone may set up hostility between the children and the spouse which is antipathetic to the will-maker’s intention. Where the relationship with the children is good, the spouse may be put on as the co-trustee with one of the children. Where this is not the case, an impartial professional trustee is probably the best option. When this arrangement is made, and depending on the funds available, the will-maker may wish to consider a small legacy immediately to the children, in order to prevent their sense that they have received nothing from their own parent and will have to wait for the step-parent to die before getting their inheritance. 1 - 1920 Planning for minor children Clients with minor children generally have two areas of the will that require particular planning: • Guardians. Although it is of short duration, the power to name a guardian for minor children can be especially important to parents. Only a parent who has sole custody has this power, so it is important to remind clients that the clause may not be effective if they have joint or shared custody. Apart from naming guardians, clients will need to think about whether they should have a backup guardian – young parents often want to name their own parents as guardians, but this may not be a practical arrangement. They will also want to consider whether to give their executors the power to pay for the application to court to have the guardian confirmed, or for other purposes such as buying a new car or putting an extension on the house, which would technically be for the benefit of the guardians rather than of the children. Parents may also want to put in provisions about maintaining contact with both sides of the family, or education in a particular religion or school. As long as they understand that these provisions are precatory, and cannot be enforced by the executor, it is possible to include them in the will. • Trusts. Most parents will want some form of trust for minor children in their will. While the standard age varies according to their assumptions about when children will be capable of managing funds, many will like 21 as a traditional age, 25 as a round number approximating when children can be expected to have completed their education and begun their independent lives, or 30. Unless it is for tax-planning reasons, it is unlikely that clients will want funds held for their children past 30. 26 Young parents may well have a good portion of their wealth in registered plans or life insurance. Depending on the amount of these funds, it may be prudent to explore having them held in trust. While the clients may have named children and a trustee on their life insurance policy, for example, they will not usually have understood that the trustee, as trustee of a bare trust, has no powers to hold the trust past the age of 18. Where the amounts in registered plans and life insurance are not proportionately large, it may actually make better sense to have them paid to the estate, notwithstanding that they are 26 Testamentary trusts have, of course, become subject to top marginal tax rates, with the exception of the so-called "40 year trust", under section 104(18) of the Income Tax Act, which has arguably limited utility. 1 - 2021 thereby exposed to Estate Administration Tax. Larger sums, of course, will justify your time in drafting either trusts within the context of the will, or freestanding trusts. Planning for disabled children Parents of disabled children frequently know that they want a Henson trust, having heard the term at one of the many presentations by associations that work with parents of disabled children. You may need to explain that the term “Henson trust” is simply a convenient way of referring to a fully discretionary trust set up for the benefit of a person in receipt of Ontario Disability Support Plan Act payments. Henson trusts vary from very simple to very elaborate, but they should all have certain elements: • Full discretion for the trustee to pay the income to the beneficiary or not; • A provision ousting the operation of the “even hand” rule so that the trustees will not be forced into making payments to the disabled beneficiary; and • Provision for income to be paid to someone other than the disabled beneficiary after 21 years, so that if after 21 years, the Accumulations Act compels the payment of income, it will not necessarily vest in the disabled beneficiary and interfere with their entitlement to ODSP benefits. In addition, the trust may deal with the number of other issues such as: • termination of the trust once the beneficiary’s no longer receiving ODSP; • guidance for payments that can be made from the trust; • payment of funeral and expenses of the beneficiaries last illness; • Provision for replacement trustees in the event that the first named trustee is no longer able or willing to continue; • naming an adviser, especially for disabled beneficiaries who are unable to speak to their own needs; • authorization for payment into other sheltered vehicles such as a Registered Disability Savings Plan; and • Authorization for the trustees to elect to make the trust a qualified disability trust. 1 - 2122 Working with parents of a disabled child may require you to explore other vehicles than the Henson trust in a will. Payments into a registered disability savings plan, or the purchase of a principal residence may, in the appropriate circumstances, represent good planning to provide for a disabled beneficiary. Planning to reduce probate Clients are frequently very certain that they want to avoid probate, but without really understanding what probate is or how it operates. In order to assist them you will need to be able to advise on: • Primary and secondary wills • Beneficiary designations • Inter vivos trusts, such as alter ego and joint partner trusts, and bare trusts • Joint ownership of assets, including some very new products such as the joint with right of survivorship bank account You should also be prepared to make a quick estimate of the client’s exposure to Estate Administration Tax, in order to ensure that the cost of the planning does not outweigh the potential benefit of the tax to be avoided. Planning for business owners Business owners will need good tax advice, especially with respect to the potential tax on shares in a private business. They will also, however, need you to advise on issues such as who should act as their executor and the impact this may have on the business. For example, while naming a business partner as executor may seem to make good sense, it can place the partner in an acute conflict of interest in the management of the estate. Working with small business owners you should be prepared to discuss: • Shareholder agreements • Life insurance – who owns it and who is named as beneficiary? • How to compensate a child who is not interested in a share of the business • How to finance a buyout of corporate shares and ensure that there is some liquidity for payment of beneficiaries 1 - 2223 • Where shares are to be held in a trust such as a spousal trust, what instructions should be given to the executors to ensure an appropriate flow of income to the spouse • What clauses will need to be included to facilitate postmortem tax planning if appropriate • Multiple wills Planning for real estate You will want to do sub-searches of any real estate owned by your client that is not obviously under the land titles system, such as a condominium. Even property in the land titles system may be passed through a secondary will without probate if it benefits from the “first dealing” exemption. Perhaps the most troublesome piece of real estate to be dealt with is a family cottage. You will need to discuss with your clients some of the following issues: • Various forms of title if the property is passing directly to children. For example, should they own as tenants-in-common or as joint tenants or perhaps each set of children should own as joint tenants with their own spouses and children but as tenants-in-common with their siblings • Is there a benefit to an immediate transfer of real estate as opposed to a transfer under the will? Do not forget that a conveyance retaining a life interest may accomplish many of your client’s objectives, especially where there is not a large capital gain at the time. • Should the estate hold the cottage in trust and if so for how long and on what terms? • If there is a trust, how are the cottage expenses to be funded for the duration of the trust? A common arrangement is to have funds set aside from the residue of the estate, but clients will frequently want some provision for payment to be made by the children who use the cottage • If the cottage is held in a trust who should be the trustee, bearing in mind that the trustee may be called upon to act as arbiter if there are disputes? • Do the children really want the cottage, or would they prefer the cash generated by its sale to buy their own cottage? Planning for income tax You may not be a tax expert, but you need to know enough to know where there are likely to be tax liabilities and roughly how much, in order to make a reasonable assessment of the funds that 1 - 2324 the client has available to dispose of. Obviously, if there are complex questions, you are well advised to involve the client’s accountant in addressing the impact of tax on the estate. Planning for Non-Residents Your clients may have assets or beneficiaries outside Canada or be subject to laws and taxation in another jurisdiction. Property in another jurisdiction will be subject to the laws of that jurisdiction, such as a “forced heirship” regime common in many civil law countries.27 The United States levies estate taxes on the basis of nationality or citizenship rather than residence.28 You need be able to identify which of your clients need to be concerned about US estate tax issues and know how to direct them to help. • US person need to consider US estate and gift taxes. A US person includes a US citizen (including “accidental Americans” born in the US but have no other association with the country) and US resident, Green Card holders or those with a “closer connection” to the US. • Canadian residents may also need to be concerned if they own US situs assets29 worth more than US$60,000.00 and whose worldwide estate over $5.49 million USD (for 2017), or if they have beneficiaries who have US connections. • Unless you are qualified to advise on US law you should be prepared to connect clients to good cross-border accountants and lawyers. • Recent European Union regulations permit individuals who die on or after August 17, 2015 to select the legal regime of their nationality to govern the succession of EU situs 27 See Catherine Brown, “Death as a Taxable Event: The Problem of Multi-Jurisdictional Estates for Canadians and Their Heirs and a Road Map for Assessing Potential Liability,” (2011) 31 ETPJ 27. 28 So do Chinese Taipei, Czech Republic, Greece, Hungary, Japan, the Netherlands, Norway, Poland, Croatia, and Germany. 29 US situs assets include real estate in the United States, shares in US corporations (even in an account in Canada), tangible personal property situated in the United States (i.e., cars, art, etc.), US pension plans (including IRAs and 401(k) plans), and US shares held in a Canadian registered account. 1 - 2425 assets, so it may now be possible to change the default “forced heirship” by making a declaration that Ontario law will apply to assets located in a EU member state.30 Planning for charitable gifts Clients who are making significant charitable gifts may already who have discussed the issue with their potential beneficiaries, but if they have not done so it may make sense for you to contact the charities. Particularly where the gift to the charities to be made after an intervening trust, the client will need to understand that the full benefit of the charitable donation may not be obtained. Where the client wishes to apportion their estate between charities and individual beneficiaries, consider that some charities have become particularly aggressive in their approach to executors, and that the administration of the estate may be significantly easier if the charities receive a fixed sum instead. Where all or a significant portion of the client’s estate is a gift to charity, or where there is a gift of over $10,000, most charities are willing to create a named fund. Clients who do not have children are often very pleased with the suggestion that their name can be carried on through a fund established with the charity. Choosing executors You should be prepared to canvass with your client a range of potential executors in varying combinations. Consider the following: • The categories of potential executors are: spouses, children, other family members, close friends, professional executors. Strategic combinations of members of these various classes can mitigate some of the potential problems. For example, a child may be still too young to assume the full responsibility of executorship, but could be co-appointed with a close friend. A spouse may have too many conflicts of interest, but could be co-appointed with a trust company. 30 Regulation (EU) Nr. 650/2012 of the European Parliament of the Council of July 4, 2012 applies to individuals from non-member states. The application of the new regulation is a complex matter, which you should investigate carefully before advising on it. 1 - 2526 • Number of executors – while there is no legal limit on the number of people who can be named as executors, there are some very practical problems. Since executors are required to act unanimously, five executors may have difficulty simply in discussing the issues on which decisions are required, even if disagreement is not likely to arise. Where the client has several children who do not get along, the likelihood that the administration will go well if they are all named as executors is slim! • Try to persuade clients that executorship is a job and that they should be choosing someone who is most likely to do the job effectively, rather than someone whom they would like to honour. Apart from honesty and a willingness to get on with doing the job, there is no essential quality for an executor, although some business experience, an ability to communicate with beneficiaries, and some negotiating skills are likely to be of assistance. • Where a professional executor is being appointed, it is highly advisable for the willmaker to have discussed compensation with the proposed executor, and for the executor (especially trust company) to have had an opportunity to review your drafts. • Trust companies have compensation agreements, and some other professionals are occasionally using a similar approach to compensation. Even where a family member is appointed, however, client should be discouraged from “lowballing” the compensation to be paid to the executor. It is also generally not a good idea to try to use a legacy in lieu of compensation, since if it is in lieu of compensation it will be subject to tax at the same rate as ordinary compensation, with the additional complication that the recipient may simply take the legacy and pass on the work. • Where there are several executors, it may be advisable to provide for some form of majority decision making. Another option may be to appoint an “umpire” who is not actually a trustee but could be appealed to in the event of disagreements among the trustees. • Clients should also be discouraged from appointing nonresident trustees, since they may thus inadvertently trigger the creation of a non-resident trust, or compel the purchase of a surety bond. If there is, for example, non-resident child, the simplest solution may be to appoint a Canadian resident co-trustee but without a majority rules clause. • As trustees, executors are required to act unanimously, and so executors should never be appointed jointly and severally. 1 - 2627 Choosing Attorneys Many of the same considerations when choosing an executor will apply when choosing an attorney under a Continuing Power of Attorney for Property. The skills required of an attorney for personal care may be different, and clients may need to be reminded that they do not have to appoint the same person to manage their finances as they appoint to assist with medical and personal care decision-making. Consider the following: • Attorneys for property can act for many years without any effective oversight or even notice to beneficiaries and family, so honesty and transparency may be even more important in this role then they are in an executor. • Attorneys for personal care need to convey the last capable wishes of the donor, including wishes expressed orally, so it is important that the attorney have had discussions regarding those wishes. It would thus be unwise to appoint someone with whom the donor was not comfortable discussing personal and medical matters. • Some decisions – where the incapable person resides, for example – require cooperation between attorneys for property and attorneys for personal care. Clients should therefore be encouraged to make sure that they will be able to cooperate in making decisions. This is not the time to placate squabbling children by giving them each a role. • Gifting by an attorney for property has become a particularly contentious area, and the guidelines in the statute are not particularly precise, so – especially where the client is in the habit of making significant gifts to children, or is actively supporting one child, ask about including some guidance for the attorney on how gifts are to be made. • Medical aid in death is not yet a matter that can be dealt with by an attorney for personal care, but many clients want to include a statement of their desire that their attorney be able to make the decision for them if it does become legally possible. • You should review your precedent powers of attorney to ensure that they contain a fairly generous package of powers, since the law on some issues – in particular the powers of an attorney for property to make will-like transactions – has yet to be fully clarified. Some practice pointers • Use good quality paper for your wills and store them flat, without plastic covers or envelopes. They should be kept in a fireproof, waterproof environment. You must 1 - 2728 have a record system that will allow you to keep track of the wills you hold and to recover them promptly when they are needed. • If at all possible, do not allow clients to sign wills and powers of attorney except under your direct supervision. • Scan your wills so that they are easy to call up while you are on the telephone with your client or the executors. • Consider using larger type and plenty of spaces for clients who have difficulty with their vision. • Have a series of handouts or YouTube videos to which you can refer clients for the kind of standard information that you provided every meeting, such as the difference between a power of attorney for personal care and a living will or the difference between a will and a power of attorney for property. • The pace of change in estates law, especially in recent years, means that you should not promise to tell your clients if they need to revise their wills because there is been a change in the law. Blogs are an excellent way to make available information about changes in the law, and can also act as an excellent marketing tool. • You should charge a decent fee for the work that you do in preparing wills and powers of attorney. If you choose to use a flat fee, you should base it on a reasonable estimate of the actual time you put into meeting and interviewing clients and drafting documents. One option is to break your fee into two parts – a flat fee for each document provided and an hourly fee for your time, expertise, and advice in meeting the client and preparing and executing the plan.
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