]]> http://bcheritagelaw.net/heritagelawblog/2007/04/30/collaborative-law/feed/ http://bcheritagelaw.net/heritagelawblog/2007/02/28/dont-change-the-wills-variation-act/ http://bcheritagelaw.net/heritagelawblog/2007/02/28/dont-change-the-wills-variation-act/#comments Wed, 28 Feb 2007 06:32:20 +0000 admin http://bcheritagelaw.net/heritagelawblog/?p=9 Open Letter from Trevor Todd to the Attorney General Regarding Proposed Changes to the Wills Variation Act

In the summer of 2006 the British Columbia Law Institute delivered to the Attorney General a sweeping report entitled Wills, Estates and Succession: A Modern Legal Framework. Many of that report’s recommendations involve well-considered and welcome changes.

There are two recommendations in that report, however, which appear to be ill-considered and arguably contrary to public policy. Specifically the problematic recommendations propose changing the Wills Variation Act.

The Wills Variation Act permits a spouse or child to contest a will where it does not make adequate provision for them. The class of claimants eligible to bring such a claim includes any spouse, common-law spouse or same-sex spouse and includes both the natural and adopted children of the deceased.

The troublesome changes proposed in the report would:

a) eliminate adult children as claimants unless they are unable to be self supporting; and
b) discourage lump sum payments under the Act in favour of periodic maintenance

The supposed “rationale” for the proposed changes is to make the law of British Columbia consistent with the law in other Provinces. In fact, we say that British Columbia, is actually ahead of the other Provinces. Our legislation permits B.C. courts to bring more fairness into the law of wills and succession by introducing the principles of equity.

These proposed changes would reverse almost 90 years of jurisprudence enforcing the claims of adult children, who have not been adequately provided for in a parent’s will. We believe it is contrary to good public policy to abolish these long standing rights. Indeed the only apparent rationale is to provide certainty to both testators and to their solicitors who do not like to see their well-crafted wills rewritten.

In this paper, we intend to briefly sketch the background to the legislation and illustrate, with real life examples, the clear need for such legislation.

Today’s Society

The potential for inheritance conflicts has been growing, especially with the increasing number of “blended family” situations and second or even third families. In such cases there may be differing perceptions of any obligation to provide an inheritance for younger children, as opposed to older more established children.

The question of a child’s “entitlement” to share in a parent’s estate often provokes a lively discussion. Thus it is common, in our experience, for people to criticize the Wills Variation Act because it permits mere “malcontents” to contest a will. It is said these ingrates should instead be grateful for whatever their parents have given them.
Unfortunately such critics simply do not appreciate that many successful claims involve disempowered individuals who have been raised in dysfunctional families. Too often, the last act of abuse by an abusive parent is to disinherit their child. For example, we have had a couple of cases involving childhood incest victims who have been disinherited as adult women, yet they will carry the scars of this devastating abuse all their lives. This is just one type of claim which would be eliminated if the legislation is passed.

Let us begin by reviewing three recent successful claims which would be eliminated by the proposed changes. Perhaps these examples will help to illustrate the dangers of “tinkering” with this legislation-particularly in an increasingly diverse and multi-cultural society.
1) The cultural bias for males over females-preferring sons over daughters in wills.

Many cultures, including for example, South Asians and Chinese, commonly favour sons over daughters both in life and in death. The decision of Prakash and Singh v. Singh et al 2006 BCSC 1545 involves such a case. Most of the mother’s estate went to her sons. They were left bequests of $260,000 each compared to the $ 10,000 left to each of three daughters.

Mr. Justice Rice, increased the daughters bequests to an almost equal share with the sons. In doing so he eloquently stated:

” In modern Canada, where the rights of the individual and equality are protected by law, the norm is for daughters to have the same expectations as sons when it comes to sharing in their parents estates. That the daughters in this case would have this expectation should not come as a surprise. They have lived most of their lives, and their children have lived all of their lives, in Canada.

A tradition of leaving the lion’s share to the sons may work agreeably in other societies with other value systems that legitimize it, but in our society, such a disparity has no legitimate context. It is bound to be unfair, and it runs afoul of the statute of this Province.”

2) Disinheriting Gays and Lesbians

Peden, Smith et al 2006 BCSC 1713 involved a deceased who left three sons, two heterosexual sons and one gay son. The Deceased’s will provided that the two heterosexual sons would receive an outright inheritance whereas the gay son would receive only the income of a share to be held in trust during his lifetime. The capital of his share would be left to his two brothers after his death. The drafting lawyer gave evidence that the deceased had been greatly upset that his son was gay and actually had wanted to completely disinherit him. The court concluded that it was the son’s gay lifestyle which had thus caused the deceased to dispose of his estate as he did.

The court varied the will and converted the life estate to be an outright direct gift to the gay son. In so doing, the court observed “homosexuality is not a factor in today’s society justifying a judicious parent disinheriting or limiting benefits to his child.”

3) A Child Abandoned to a Life of Abuse and Deprivation by Her Mother

Austin v. Janzen Estate involved a plaintiff who was born illegitimate. Her mother, rather than putting the girl up for adoption, farmed her out to an abusive home. Over the years, the mother paid $ 20 per month to have her daughter raised by this abusive family. She visited occasionally until she had a new boyfriend. She continued to repeatedly reject this daughter. For example, their last contact was when the 14 year old daughter wrote to ask for money for badly needed dental treatment. The mother wrote back that she could not afford the money because she needed it to paint the nursery for the new baby she and her husband were about to adopt.

This mother effectively abandoned the plaintiff yet went on to be a loving and supportive mother to two adopted daughters. Not surprisingly these adopted daughters were well educated and enjoyed happy successful marriages and lives. On the other hand, the plaintiff left school when she was young and struggled through abusive marriages and many other traumatic events.

At age 60 the plaintiff learned her mother had died leaving her very sizable estate to her two adopted daughters. To the plaintiff she left $100.

The Court varied the will to provide for an equal one third to each daughter.
Background - Testamentary Freedom at Common Law

Any discussion of the Wills Variation Act requires an understanding of the English common law underlying the legislation.

English common law provided that when a person died, that person could leave his or her property to whomsoever he or she wished.

This ability to dispose of one’s estate is known as “testamentary autonomy ” or “testamentary freedom”. It is legal doctrine which was developed by the English courts during a time (1700-1900) when little property was actually disposed of by will.

During that time, few people actually had assets to leave in a will. Most wealth was made up of real property which was generally considered to be family property. Because it did not belong to the individual, it was not part of the estate to be disposed of by will upon death.

When the children of wealthy families married, their families often made marriage settlements which included conditions with respect to the ownership of the property and its passage upon death. Thus, property governed by a settlement was not part of an individual’s estate.

It was in this context that the English courts decided that a testator was free to decide the beneficiaries to inherit under his or her will.

Thus, the English law of succession left it to the discretion of testators to dispose of their estates as they saw fit. Even today at common law testators are not legally obliged to make provision for their spouse or children. There is no binding obligation to leave a set amount to their spouse or their children.

This English common law was inherited by all of the former English colonies, including Canada. It is noteworthy that this common law approach is in stark contrast to most of the rest of the world. The law of most civil law countries (all of Europe but for England, South America, Africa, Japan) requires that the majority of a person’s estate pass on death to their spouse and children.

In civil law countries which include most of the non-English speaking world, a fixed portion of a deceased’s estate (often 50% to 75%) passes automatically to the surviving spouse and children. The testator can only dispose freely of a smaller portion of his or her estate. The credo seems to be “you had them, you pay for them”.

In our common law world, this historic common law doctrine of testamentary freedom has been modified by statutes such as the Wills Variation Act which permit the spouse or children to make a claim against the estate in appropriate circumstances. Unless there is a successful statutory claim brought under the Wills Variation Act, however, the principle of testamentary freedom still prevails at common law.

We contend that our Canadian society should not be slaves to the historic concept of testamentary autonomy. The common law is always focused backwards and the usefulness of this out-dated concept is extremely questionable. Quite simply, the Wills Variation Act provides for equity to be done, where appropriate. Eliminating the claims by adult children would prevent the courts from doing equity in appropriate circumstances. It is for that reason we strongly suggest that eliminating appropriate Wills Variation Act claims would be a move backwards rather than forwards.

It is only assets that actually form part of the deceased’s estate which are subject to Wills Variation Act claims. Testators, who are truly determined to disinherit their children, may still use trusts and inter vivos transfers to circumvent the Act. Indeed the rich have historically utilized trusts to circumvent the Act and other statutory law. Many will continue to do so. It is not illegal to arrange one’s affairs to avoid the application of the Act altogether.

Claims under the Wills Variation Act by Adult Children

In our practice, claims frequently involve the children of abusive and alcoholic parents, generally fathers. We hear a recurring theme - a father coming home drunk after work, beating his wife and children, and generally terrorizing the family on an ongoing basis. Many of these children leave home at very early ages, and quite understandably bear a strong resentment against the abusive parent. Some become substance abusers themselves. At best, they remain emotionally damaged individuals.

Naturally such abusive parents generally have little insight as to the lifelong effects of their mistreatment. Thus the abuser, when preparing his or her will, will typically disinherit the children on the basis of estrangement. The handling lawyer or notary often just accepts this statement as the truth of the matter and makes little enquiry into the history of the estrangement.

Most of us had the remarkable fortune to be raised in happy, healthy families. But just ask any experienced teacher, minister, police officer or doctor and they will attest to the great number of dysfunctional families. A visit to the Canadian Department of Justice Family Violence fact sheet
indicates much more family violence than we would wish to believe. There is a large body of information available that attests to the unfortunate frequency of such dysfunctional families.

In our practice many of the estrangement cases involve a history of physical, emotional and/or sexual abuse by the parent or step-parent toward the child. Where the estrangement can be properly explained and put into perspective, then the adult child may well have a meritorious claim under the Wills Variation Act.

Two Real Life Examples from our practice:

Example 1 involves a claim made by the three adult independent children relating to the death of their father, Mr. M, a victim of murder.

Mr. M had been married for almost 50 years when his first wife died. He had a good relationship with his three adult children and his grandchildren. Living alone, however, he became very lonely and depressed and thus engaged Ms. R through an “escort service”.

Shortly after they met, Ms. R moved into the deceased’s residence. Mr. M was 71 and Ms. R was 41. Ms. R changed the residential phone number to her own unlisted number and soon completely isolated Mr. M from his children. Within two months they “married” (unbeknownst to Mr. M, his “bride” was still legally married to another man). On their tropical “honeymoon” he was treated at a medical clinic for a lacerated scrotum-it appeared that he had been kicked. Shortly after the marriage Mr. M prepared a new will leaving his entire estate to R, and alternatively to her daughter, thus completely disinheriting his own three children.

Once back in Canada, the ” bride” began to run her escort service out of their now joint home, publishing ads that she “specialized in seniors”. This so-called marriage ended abruptly a few weeks later when Ms. R beat Mr. M to death. In fact, she beat him so severely she broke every rib in his body. She was subsequently convicted of his murder and thus became disentitled to share in his estate. As a wrongdoer, she was prevented by law from benefiting from her own crime.

In these circumstances, however, Ms. R’s daughter arguably continued to have a valid claim as the alternate beneficiary under the will. This daughter had never met the deceased. At common law, however, testamentary freedom prevails and this daughter had done no wrong. Ms. R’s daughter was very arguably entitled to receive the entire estate as the named beneficiary under the will.

Fortunately however, an application under the Wills Variation Act led to the court rewriting the will to leave the estate instead to Mr. M’s three adult children.

Example 2 involves a 40 year old woman known as S. She had been adopted at age 7 by the Deceased and her husband, it seems more as a servant than as a child. She was made to work long hours at her “mother’s” puppy farm business. Each morning S rose at 4.30 am to feed and care for 100 animals before catching the school bus into town for school. The Deceased would routinely beat her for any perceived misbehaviour or insubordination. In extreme situations, she was denied food. The Deceased wore the pants in the family and her husband, rather a more kindly man, did not intervene on S’s behalf. Presumably, he too was victimized by his wife.

S skipped school for the first time at age 16 (one Friday afternoon, in order to help her friend prepare for the friend’s mother’s release from hospital). S learned from her father that the deceased intended to beat her so she stayed away until Sunday, hoping her mother would cool down. When she phoned home her mother told she had already burned all of her possessions and would be putting her dog down. The mother said “You came into the house with nothing and you will leave with nothing”.

This Deceased not only disowned S, she obliged her husband and other family members to disown S as well. (Fortunately one kindly aunt defied this order, however, she too paid the price for disobedience.)

S was homeless and taken in by friends. With few options, she became pregnant and married a severely abusive man who continued to abuse her and the children for years. He beat her and starved her and the children while she was pregnant-gambling all their money away. Their third child, a son, was born severely disabled child. S finally summoned the courage to leave him raising her children on her own for 24 years. She continues to care for this adult son who cannot speak and is incontinent. He weighs only 40-45 pounds and is catastrophically injured in every sense of the word.

Nevertheless S managed to get a university education by attending classes while her son was at eligible government care as a child. Once he became an adult however, this eligibility ended and she continued to care for him full-time rather than putting him into an institution.

S was a very kind person who repaid her aunt’s kindness many times over. She also attempted to contact her adopted mother on several occasions, but was rebuffed at each turn.

The Deceased died leaving an estate of approximately $250,000. Her will provided S with a bequest of $5,000 on the basis that they had been estranged for 25 years.

We commenced a Wills Variation claim on her behalf however once the proper facts were brought to the attention of the executor and beneficiaries of the estate, the case was settled with S receiving one-half of the net estate.

Summary of Basic Principles –The Clucas Decision

Madam Justice Satanove, in Clucas v. Clucas Estate 29 E.T.R.(2d) 222, did an excellent summary of the basic principles of the Wills Variation Act.

Let us paraphrase those principles briefly.

$ The main object of the Act is to provide adequate, just and equitable provision for the testators’ surviving spouse and children.

$ The Act also protects the interest in testamentary freedom which is not to be interfered with lightly. In the absence of other evidence, a testator is presumed to know best how to meet his legitimate obligations and concerns.

$ The Act provides an objective standard by which to measure whether a testator has provided “adequate and proper maintenance and support” for his surviving spouse and children. Thus the court should examine the will keeping in mind society’s reasonable expectations of what a judicious parent would do in the circumstances.

$ In making a determination, the court must consider any legal obligations of the testator to the spouse and children, followed by the moral obligations to them.

$ Independent adult children have a more tenuous moral claim than any spouse or dependent adult children. If the size of the estate permits, however, parents should generally make some provision for adult independent children (unless there are circumstances which rule out such an obligation)

$ A testator may have a moral duty to adult children in a number of different circumstances including disability, legitimate expectation of inheritance, probable future difficulties of the child; the size of the estate and other legitimate claims.

$ This moral obligation by a testator may be negated by “valid and rational” reasons which justify disinheriting the child. In such a case, these reasons must be based on true facts and must be logically connected to the disinheritance

$ Although a needs/maintenance test is no longer the sole factor governing such claims, a consideration of needs is still relevant.

Conclusion

The purpose of this paper has been to demonstrate there are many circumstances in which the Wills Variation Act allows equity to be done for adult children. That ought not to change.

In effect the British Columbia Court of Appeal has specifically recognized dysfunctional families in their decision Gray v. Nantel 2002 BCCA 94. In permitting the claim of an estranged child, Mr. Justice Donald, spoke for the court:

“I cannot accept that a child so neglected for his first 18 years and then treated shabbily during a brief reconciliation can be said to forfeit the moral claim to a share in his father’s estate by abandoning any further effort to establish a relationship. The fault in this sad story lies with the father and, in my opinion, the onus to seek further reconciliation was on his shoulders. The testator gave the appellant virtually nothing in an emotional or material way; the will was his last opportunity to do right by his son” (emphasis added)

For close to 90 years adult independent children have had the right for equity to be done, in appropriate circumstances, under the Wills Variation Act. The five actual cases discussed in this paper represent a small sampling of the legitimate claims brought under this Act by independent adult children.

If the current right to bring such actions is curtailed, it will particularly damaging to those already disempowered. It will eliminate the claims of the disempowered whether they be the daughters
of Asian Canadian families, gays or victims of families abuse.

If you agree with the position in this article, then we encourage you to write to the Attorney General and to let your Provincial MLA know of your concern.

When: 7:30 to 9:00 am Wednesday, March 14th, 2007

Where: Hollyburn Country Club, 950 Crosscreek Rd, West Vancouver BC

Cost: Members $25.00 / Non-Members $35.00 (GST Included)
Pre-paid registration is required

Francesco Aquilini, Managing Director, Aquilini Investment Group Inc.

Born and raised in East Vancouver, Francesco Aquilini is Managing Director of the Vancouver-based Aquilini Investment Group, a family-owned and operated firm that was started by his father, Luigi, some 50 years ago.

The company owns and manages a diversified real estate portfolio that includes commercial properties, office buildings, hotels, golf courses, and cranberry farms, as well as the development and sale of multi-family residences and condominiums.

In addition, the Aquilini Investment Group is the owner of the NHL’s Vancouver Canucks and General Motors Place, with Mr Aquilini acting as the team’s NHL Governor.

A business administration graduate of Simon Fraser University, Mr Aquilini received his MBA from the University of California, and over the past 25 years, he has worked in each of the Group’s operations, providing him with broad national business experience.

Committed to a number of unique community endeavours, Mr Aquilini was the chair and primary sponsor of the Italian Gardens at Vancouver’s Hastings Park. In addition, the Aquilini Investment Group was instrumental in the creation of a 100 hectare nature conservancy named for the company in British Columbia’s Fraser Valley. In addition, together with his wife, Taliah, Mr Aquilini is also an active corporate and community fundraiser for the Canucks for Kids Fund, the signature charity of the Vancouver Canucks.

What is a Testamentary Trust?

A testamentary trust is simply any trust that arises on death through a will. Like all other trusts, a testamentary trust creates a legal relationship between the settlor of the trust (in this case the deceased person or the “testator”), the trustee (who is often the executor of the will but who could also be a separately named trustee under the will) and the beneficiaries of the trust (family members or other individual beneficiaries of the testator or charities). The terms of the trust can provide for the payment of income or capital or both to the beneficiaries. Either the interests of all beneficiaries can be fixed in the will or discretion to allocate the income and/or capital among the beneficiaries can be left to the trustee.

Although the beneficiaries of the trust have an interest in it, the trustee is the legal owner of the property held in the trust and has the authority to control the management of the assets. The trustee’s obligations include making decisions about the investment of the trust assets and preparing and filing tax returns on behalf of the trust. It is possible to establish multiple testamentary trusts in a will.

Taxation of Testamentary Trusts

Like all trusts, a testamentary trust is treated as a separate taxpayer under the Income Tax Act and must file a return reporting its income, gains and disbursements to beneficiaries in each year. A trust may have a non-calendar year-end. Generally, a trust will receive a deduction from its income and gains in a year for amounts paid or made payable to the beneficiaries in that year.

However, inter vivos trusts (trusts created during a settlor’s lifetime) pay tax on income and gains retained in the trust at the highest marginal rate for individuals. Tax is payable in the province of residence of the trust, usually where a majority of the trustees reside. This is a significant disadvantage and generally necessitates the allocation of the income and gains to the beneficiaries in each year. Such disbursements maintain their character as income, dividends or capital gains and are taxed in that manner in the beneficiaries’ hands.

What makes testamentary trusts different from inter vivos trusts is the favourable tax treatment they receive under the Income Tax Act. Unlike inter vivos trusts, testamentary trusts pay tax using the graduated rates in the Income Tax Act on income retained in the trust, although they do not receive the personal deductions available to individuals. Access to these graduated rates makes it much more beneficial to retain income and gains and have them taxed in the trust rather than taxed in the beneficiaries’ hands. The trustee can elect to have the income and gains taxed in the trust even if these amounts have been paid or are payable to a beneficiary. In this way, income that would otherwise be taxed at the highest marginal rate in the hands of a beneficiary who already pays tax at the high rate can be taxed at a graduated rate in the trust. This is the main tax benefit to putting income producing assets in a testamentary trust. For example, a portfolio of investments worth $750,000 and earning 8% per year or $60,000 in income can generate approximately $8,500 in tax savings each year at current rates.

There are other income tax considerations related to testamentary trusts. First, because testamentary trusts only arise on death, the assets placed in a testamentary trust must be owned by the testator at death. Under the Income Tax Act, all capital properties are deemed to be disposed of at their fair market value by a testator at death. Depending on the adjusted cost base of the capital property in question, the deemed disposition may trigger a significant capital gain which will be taxed in the hands of the testator’s estate. The estate plan needs to address this gain.

Second, because the assets that will be placed in the testamentary trust pass through the testator’s estate, probate tax is payable on the fair market value of these assets. Probate fees in British Columbia is approximately 1.4%. However, this probate tax can be offset by future income tax savings within the first year.

Third, assets placed in a testamentary trust are subject to the “21 year deemed disposition rule” in the Income Tax Act. That provision creates a deemed disposition of all capital property held in a trust every 21 years, with any consequent capital gains taxed at that time. An actively-traded portfolio can effectively manage the implications of this rule.

Fourth, although not strictly an income tax issue, all trusts are subject to the “rule against perpetuities”. This rule prevents property from being tied up in a trust indefinitely unless the trust has charitable purposes or a charitable beneficiary. Proper planning can easily address this limitation.

Fifth, certain rules known as the “attribution rules” in the Income Tax Act which serve to attribute income back to the settlor do not apply to a testamentary trust. This is another benefit to using such a trust.

A final consideration is the administrative cost associated with the creation and use of testamentary trusts. A trustee is required to file tax returns on an annual basis, to hold trustee meetings if there is more than one trustee and to prepare and issue trustee’s resolutions confirming the exercise of discretion by the trustee. These administrative costs must be weighed against the significant income tax benefits.

Spousal Testamentary Trusts

One very common type of testamentary trust is a spousal testamentary trust. In this case, assets are left by a testator to a testamentary trust for the benefit of the testator’s spouse, usually for the spouse’s lifetime. The terms of the trust must provide that all of the income be paid or payable to the spouse during his or her lifetime and may also include access to capital in the trustee’s discretion or at the request of the spouse. On the spouse’s death, the assets pass to other specified beneficiaries (typically children or charities) either outright or in a continued trust.

A trust established in this way provides an additional tax benefit in that the assets initially transferred to the spousal testamentary trust are “rolled” in to the trust at the testator’s adjusted cost base. In this way, the tax that would otherwise be payable on any capital gain inherent in those assets is deferred until the second spouse’s death. However, there may be circumstances where one might elect out of this rollover and crystalize a gain at the time of the testator’s death, perhaps to take advantage of unutilized capital losses or the enhanced capital gain exemption on qualified small business shares. Furthermore, separate tax returns can be filed for the spouse on his or her own income and gains and for the spousal testamentary trust, giving the spouse access to two sets of graduated income tax rates.

Non-Income Tax Benefits of Testamentary Trusts

Testamentary trusts also have many non-income tax benefits. First, assets placed in trust for a beneficiary under a will can help maintain continuity of ownership and control of those assets. Because the trustee has legal title, particular assets (such as a cottage property) can be placed in the trust and held for the benefit of family beneficiaries. The terms of the trust would outline how the family members can access the property and how repairs and maintenance will be addressed. If the asset is non-income producing, a sum of money may need to be added to the trust to cover ongoing expenses. Such trusts would be subject to the rule against perpetuities and the 21 year deemed disposition rule discussed previously.

Second, depending on the terms of the trust, beneficiaries of testamentary trusts typically have no right to demand that the assets of the trust be conveyed to them. As such, testamentary trust assets are free from the claims of beneficiaries’ creditors, including both commercial creditors, such as bank lenders, and also family creditors, such as spouses. The trust structure can also provide protection for a spendthrift beneficiary. In this way, testamentary trusts can be a good tool to ensure an estate passes only to the intended beneficiaries.

Third, a testamentary trust can make funds available to finance a disabled child’s needs in case of death of both parents. The trustee manages the assets in the trust for the benefit of the child and distributes the income and capital to the child at the trustee’s discretion. The terms of the trust can provide discretion to the trustee to give no more than the government’s allowable maximum so that the disabled beneficiary can continue to collect any government assistance that he or she currently receives.

Finally, using a testamentary trust can avoid double probate tax. Although the assets initially placed in a testamentary trust are subject to probate tax in the original testator’s estate, the terms of the trust can provide for their later disposition through the trust, thereby avoiding a second round of probate tax on the same assets.

When Might One Consider a Testamentary Trust?

A testamentary trust can be useful in many situations:
• for a spouse who has enough assets in his or her own name to permit the other spouse’s assets (or a portion of them) to be held in trust without full access to the capital. Because tax is paid by the trust, the savings noted previously can occur;
• for children or grandchildren who have their own assets and who want the tax advantage of having the trust as a separate taxpayer. There can be as many testamentary trusts as there are children or grandchildren, each with access to the graduated rates. In this situation, it is recommended that each child or grandchild be the beneficiary of a separate trust so that the Canada Customs and Revenue Agency does not challenge the overall structure;
• to protect assets from a widow or widower’s new suitor or children’s spouses on marital breakdown. Because the beneficiaries do not have a full interest in the trust, the trust assets are generally protected from the claims of beneficiaries’ spouses or other creditors;
• to protect a spendthrift or disabled child. The terms of the testamentary trust must be carefully drafted in these situations;
• for particular assets that are not necessarily income producing, but where continuity of ownership and control is important. This could apply to a cottage or shares of a small business corporation; and
• where the estate plan includes benefiting a charity or charities, but where the assets are required to continue support for a spouse or children. In this case, the assets could be left to a testamentary trust or a series of trusts for the lifetimes of the family beneficiaries with provision that the assets will pass to specific charitable beneficiaries upon the deaths of the individual beneficiaries. If the trustee has no power to encroach on capital during the lifetimes of the individual beneficiaries, a charitable tax receipt can be obtained from the charitable remainder beneficiary, which can be used to offset some of the capital gains that may occur through the deemed disposition on death.

There are significant tax and non-tax reasons why testamentary trusts should be considered as part of an overall estate plan.

Trust and betrayal in the golden years

By Kyle G. Brown

Concerned about her mother’s mental health, Sarah took decisive action. She helped 82-year-old Celia move to a retirement community, she set up accounts for her at a local health-food store and an upscale clothing boutique. She also took over her financial affairs.
But at the mention of her daughter, Celia says: “I swear to God, she should be in jail.”

Since 2004, when an Alberta court granted her daughter guardianship of her mother and control of her $400,000 in savings and stocks, Celia claims Sarah has taken almost all of her possessions - and left her without a bank account, or even identification. (Both of their names have been changed to protect their privacy.) While her daughter claims to be acting in her best interests, Celia feels betrayed and helpless.

And she is hardly alone. Toronto lawyer Jan Goddard, who has worked on elder-abuse issues for 17 years, says financial exploitation of seniors is now “endemic across the country.” This can range from snatching a few dollars from grandma’s purse to transferring property.

Brenda Hill, the director of the Kerby Rotary House Shelter in Calgary, agrees. “We’ve had people who have had their homes sold, who have been virtually on the street with no food and no money because their children have taken all their assets,” she says. “It happens quite often.”

And the problem is likely to get worse before it gets better. People 65-plus are the fastest-growing segment of the Canadian population - but cuts to health services in the 1990s have meant that fewer seniors are living in public institutions.

This, in turn, has placed increased pressure on family members, which a Statistics Canada report in 2002 suggested could lead to a rise in the abuse of older adults.

South of the border, taking money from mom and dad is also seen as a serious issue. So much so, that the Elder Financial Protection Network predicts that it will become the “crime of the century.”
Ageism is partly to blame. As is a culture of entitlement - where the money parents spend can be seen as a “waste” of the child’s future inheritance.

Charmaine Spencer, a gerontologist at B.C.’s Simon Fraser University, says both are particularly prevalent in North America. Although she adds, “I have not seen a single culture in which abuse of the elderly does not take place - it’s financial and psychological abuse, and when that doesn’t work, it’s physical.”

But addressing such exploitation is anything but straightforward. How do legal and medical professionals determine when adult children are taking advantage of aging parents - and when they are enforcing necessary restrictions on those no longer able to care for themselves? How do they intervene, either to stop abuse or to help elderly parents cope with newly dependent roles, when seniors are enmeshed in painful power struggles with grown sons and daughters?

Take one of Ms. Goddard’s eighty-something clients. The increasingly frail woman complained that she needed more support than her son - who lives in her house - was providing. She decided to revoke his power of attorney.

But, according to Ms. Goddard, when the woman told her son about the meeting, he was furious. The next day, she called Ms. Goddard to cancel everything. As she spoke nervously on the phone, Ms. Goddard could hear the woman’s son in the background, telling her what to say.

Though lawyers like Ms. Goddard can call in the police in such situations, getting seniors to make formal complaints against their children can be difficult. Ultimately, she says, clients have to face the repercussions of confronting their families and “keep wavering whenever they go back home.”

Seniors’ own shame can also keep them from reporting that their children are taking advantage of them. Although abuse seems to cut across socio-economic lines (even New York socialite Brooke Astor made headlines recently because of her son’s alleged neglect), older adults often feel guilty talking publicly about private matters.
As for those who do brave action against their children, many do not make it very far. While money is in their children’s hands, victims of financial abuse cannot afford the fees to take a case to court - which can run at a minimum of $10,000. And legal aid is rarely awarded to seniors involved in civil cases.

Ms. Hill tells the story of a Calgary widow who sold her house and moved into her daughter’s home. Her children transferred money from her account to theirs, borrowed her bank card and charged her for “services” such as rides and errands.

A few months later, the woman fled to the Kerby Rotary House Shelter with a small fraction of her savings. But at the age of 87 she could not face the idea of spending what little time and money she had left in the courts. Now, she resides in a seniors’ lodge with just enough cash to live out her days - though her daughter will never be brought to justice.

Dr. Elizabeth Podnieks, the founder of the Ontario Network for the Prevention of Elder Abuse, conducted the first national survey on elder abuse in 1990. She says that even when lawyers do take seniors’ cases, complainants have difficulty convincing the court that they are the victims of theft and exploitation. For example, their memory is often called into question, as they struggle to recall “giving” money to defendants.

Family members who question their parents’ ability to look after their finances may consult a capacity assessor - a health professional with special training in assessing mental capacity.
Tests vary from province to province, but Larry Leach, a psychologist at Toronto’s Baycrest centre for geriatric care, says they generally set out to answer the tricky question of whether elderly adults “appreciate all the risks of making an investment and giving gifts to people.”

If a parent is deemed incapable, the government may then become the guardian of property until a family member applies to the courts to gain guardianship.

This is what soured the relationship between Celia and her daughter. In 2004, Celia was diagnosed with dementia and deemed “unable to care for herself.” Her daughter then won guardianship over Celia’s affairs.

Celia hotly disputes the doctor’s findings - but now the onus is on her to prove that she is mentally fit or to appoint a new guardian.
Meanwhile, she is no longer speaking to Sarah. Once in charge of her own health-food store, she feels humiliated taking “handouts” from her daughter. “I can’t do anything. Where can I go with no money?” she says.

As for more cut and dried cases, where neither dementia nor family dynamics is in play, Dr. Podnieks says: “Older people don’t understand why the police can’t just ‘go in and get my money back.’ They know it’s a crime, you know it’s a crime, the abuser knows it’s a crime - so where is the law, where is the protection?”

Detective Tony Simioni, who is part of the Edmonton Police Force’s Elder Abuse Intervention Team, says senior abuse is about 20 years behind child abuse, both in terms of public awareness and government and police resources. “Financial-abuse cases rarely see the top of the agenda,” he says. “It’s low on the totem pole of crimes.”

Still, Judith Wahl, who has been working at the Advocacy Centre for the Elderly in Toronto for more than 20 years, remains optimistic. She believes that public education campaigns on elder abuse are making an impact. The rising number of reported incidents, she says, is partly due to a growing willingness to talk openly about abuse.
A 75-year-old Winnipeg woman is a case in point. She was coerced for years into paying her daughter’s bills, rent and grocery tabs.
“I would come home and cry and sort of tear my hair, and think, ‘Where do I turn to for help? Who do I go to?’ ” she says.

But eventually her friends encouraged her to contact a seniors support centre. With their help, she gained the confidence to confront her daughter - and to grant her son power of attorney.
These days, she gives gifts to her granddaughter, but when her daughter asks her for more, she tells her to talk to her “attorney.”

Kyle G. Brown is a freelance writer based in Calgary.

- if ownership or possession of the real property is transferred before July 1, 2006, 7 per cent GST applies; and
- if ownership and possession of the real property are transferred on or after July 1,2006, 6 per cent GST applies.

This general rule will apply to a sale regardless of when the agreement of purchase and sale was entered into, except in the case of a sale of a residential complex where the agreement of purchase and sale was entered into on or before May 2, 2006 (the date the GST rate reduction was announced in Budget 2006).

Special Transitional Rule for Residential Complexes:

In the case of a sale of a residential complex (as that term is defined in the Excise Tax Act) the general rules will apply with one exception as follows:

- if the agreement of purchase and sale is entered into on or before May 2, 2006 and both ownership and possession are transferred on or after July 1, 2006, the 7 per cent GST applies. However, the purchaser will be entitled to a transitional rebate adjustment.

To advance a claim under the Family Relations Act of BC (the “Act”), a beneficiary’s spouse must establish that his or her spouse 1) has an interest in a trust and 2) the property owned by the trust would be a family asset if that asset was owned by the spouse.

Not all assets owned by either of the spouses are “family assets” subject to division under the Act. Assets are family assets or become family assets if they are ordinarily used for a family purpose. The Act places a reverse onus on the party opposing a claim to establish that an asset was not ordinarily used for a family purpose. Accordingly, if there is no evidence regarding the use of a trust asset, there is a legal presumption that the asset was ordinarily used for a family purpose and would have become a family asset if owned by the spouse. The party opposing such a claim must lead evidence to rebut this presumption.

Where the assets of the trust are real estate, vehicles or other chattels, evidence of ordinary use tends to be relatively clear. Ordinary use for a family purpose is easily established in the case of residential property which is occupied regularly. Recreational property which is used for vacations, even once a year, over a period of years will be found to have been ordinarily used for a family purpose.

Where the assets are securities, cash or other “passive” investments, the distinction that is made is between the use of income from the trust as opposed to capital held by it. It has generally been held by courts that the “mere” use of income derived from assets (including assets held by a trust) does not necessarily amount to ordinary use of the assets themselves for a family purpose. However, consistent use of income over many years for family purposes may convert the asset or trust interest into a family asset. The use of capital assets usually takes the form of either an advance or a loan by the trust to the beneficiary. In determining whether such transactions amount to ordinary use for a family purpose, a Court will look to the frequency and amount of the advances as well as to the use to which the funds were put If the trust assets include shares in a company in which the beneficiary is involved as an employee, director or officer, the Act may also apply to make the trust interest a family asset.

To maximize the effectiveness of a trust to protect assets from claims by a spouse, the structure of the trust is crucial. Trusts which hold assets which will be ordinarily used for a family purpose will be open to attack as discussed above. They remain, however, effective in a practical sense. The successful claimant can only obtain a share in the beneficiary’s interest in the trust. Where that interest is a contingent one, it is virtually impossible to value as it may never be perfected. The only remedy available is an “if and when” order requiring the beneficiary to pay the claimant his or her share of any assets received by the beneficiary from the trust. This may never occur if the trust is entirely discretionary. It will, however, permanently “charge” the beneficiary’s interest and effectively defeat one of the goals of the trust.

There are some practical strategies which may prevent the trust interest from being characterized a family asset. The obvious strategy is to ensure that the trust assets are never used for a family purpose during the marriage. Ideally, not even the income would be used for a family purpose, but this would effectively defeat the purpose of the trust. Although there is some risk that the use of income alone from a trust will be found to be ordinary use of its assets for a family purpose, this is less likely under current jurisprudence unless the use is frequent and the family is to a significant degree dependent on the trust income for its general living expenses.

Despite the provisions of the Act, trusts can still be an effective asset protection vehicle if they are structured with specific goals in mind. They can be particularly effective in protecting assets which would otherwise be divided under the Act at the end of shorter marriages. Their effectiveness decreases with longer marriages during which increased use of trust assets is likely to occur and a mutual intent to rely on the trust assets for future family security would be more evident.