Sunday, December 27, 2009

Wills Variation Act: Competing Claims of a Child and Grandchildren

In November 2006, Mrs. Carol Sue Smith was diagnosed with cancer. She was married to Arthur Smith. She had an adult son Douglas Smith, and two five-year old grandchildren (Douglas Smith’s children).

At the time she was diagnosed with cancer, she held her house and other assets in a joint tenancy with her husband, such that on her death those assets would pass to him as the surviving joint tenant. Her husband was, at that time, also the named beneficiary of her Registered Retirement Savings Plan that held over $200,000.

Carol Smith decided she wanted to leave an inheritance to her grandchildren. She signed a will on July 9, 2007, creating a trust with the residue of her estate for her grandchildren. The terms of the trust allowed her trustees to use the funds for the benefit of the grandchildren until they attained the age of 30, at which time they would receive what remained in their trusts. She named her husband, her sister and her son as the trustees.

In order for there to be some assets to go into the trust, she changed the beneficiary of the Registered Retirement Savings Plans to her estate, and also had some jointly owned mutual funds transferred into her sole name.

After her death on July 15, 2009, Douglas Smith renounced his position as a trustee, and brought a claim to vary his mother’s will under British Columbia’s Wills Variation Act. At trial, his mother’s estate was worth about $230,000, without taken into account taxes (which I suspect might be substantial given that most of the assets consisted of a registered retirement saving plan), executor’s fees and expenses and legal costs.

Douglas Smith argued that he had been disinherited by his mother. She had a moral obligation to him. He was providing for his children, and her objectives would be met by varying the will to leave the entire estate to him.

Douglas Smith’s circumstances were that he earned about $60,000 per year, but his wife had health problems. They owned a home in Richmond, B.C. with a substantial mortgage.

In Smith v. Smith, 2009 BCSC 1737, Mr. Justice Williams found that Douglas Smith was a loving and respectful son and a good provider for his family. Religion was important to Douglas Smith, while his mother had a more secular view. The will indicated that Carol Smith wanted the trustees to prefer secular over religious educational and cultural pursuits. There were some differences between them, but these were minor. There were no serious disputes. Mr. Justice Williams found that Carol Smith did not have a rational and valid reason for disinheriting her son.

But Mr. Justice Williams did not agree that the will should be varied to leave the entire estate to Douglas Smith. Carol Smith’s desire to set up a trust for her grandchildren should also be recognized.

Accordingly, Mr. Justice Williams varied the will to provide one-half of the estate to Douglas Smith, with the other half held in trust for his two children.

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