If You Have Young Children, Please Make a Will

I am dealing with the estate of a man who died leaving a common-law wife and very young child. I am not going to get into the facts of this particular estate, but it got me thinking about how much simpler and better it would have been if he had left a professionally drawn will.

Let’s take a hypothetical situation. A lady dies. She has a husband, and two children, ages 2 and 4. She and her husband kept the house, worth $450,000 in her sole name. She had a mortgage, but the mortgage was life insured. She had some investments in her sole name worth $101,000, and a Registered Retirement Savings Plan worth $70,000 in which she designated her husband as the beneficiary. She and her family lived in British Columbia.

I realize that the majority of couples in British Columbia hold their principle residences in joint tenancies, but this is not always the case. Sometimes, one of them inherits the property from a parent, or they think it safer to hold the property in just one name.

What happens if the lady in our fact pattern dies without a will?

Because she designated her husband as the beneficiaries of the Registered Retirement Savings Plan, the funds will go to her husband, and will not be included in her estate.

If the husband wishes to handle the administration of the estate, he will have to apply to court to be appointed as the administrator. The court may require that he get a bond from an insurance company pursuant to section 16, of the Estate Administration Act, which will be costly, to protect the interests of the children and any unpaid creditors.

Under British Columbia law, the husband will be entitled to the contents of their home, and a life estate in the house. In other words he will be entitled to live in the house, or collect rents from the house, for his life. He can at anytime release his life interest.

The husband will also be entitled to the first $65,000 out of the estate and one-third of the residue. The children will be entitled to share two-thirds of the residue. These provisions are set out in Part 10 of the Estate Administration Act.

If the husband keeps his life interest in the house, he will be entitled to $77,000 of the investments. The children will be entitled to $12,000 each now. (I am ignoring expenses and debts in this illustration.) The children will also each be entitled to a one-third interest in the house which they will receive on the husband's death, or earlier if he releases his life estate.

The children’s shares of the investments are payable to the Public Guardian and Trustee, pursuant to section 75 of the Estate Administration Act. The Public Guardian and Trustee will charge fees for his services, and if the husband wishes access to the funds for the benefit of the children he will have to apply to the Office of the Public Guardian and Trustee.

Now, supposing the husband wishes to move. He would like to sell the home, and use the capital to buy a new residence for himself and the children to live in. If he releases his life estate in the house, then he is entitled to one-third of the proceeds of the house, which will be $150,000 (minus one-third of commissions and other costs). The other $300,000 (or thereabouts) will be paid to the Public Guardian and Trustee to hold in trust for the children. Possibly the husband could make some arrangements with the Public Guardian and Trustee to use those funds in the purchase of the new house, on the basis that the children will continue to have an interest in the new house.

The children will be entitled to take control of their shares of their mother’s estate at the age of 19. This may not be bad, if we are talking about $12,000. But if they receive substantially more than that, they might not be mature enough to manage their money, and may squander it within a few years.

What if this lady had made a Will? We can’t of course be sure of what provisions she would have made in her will. But she might have done something like this:

1. She appoints here husband as the executor with a close relative she trusts as an alternate executor;
2. She leaves here estate to her husband if he outlives her;
3. If her husband dies before her, she divides her estate between her children. She has her lawyer draw the will so that if either child is under the age of say 25, the trustee holds and manages that child’s share until the child attains the age of 25. The trustee could use each child’s funds to make payments to or for the benefit of that child, for example paying for the child’s education, before the child reaches 25. In other words, there are funds available for the children, but they don’t control the funds until they are more mature.

If she had made these provisions in a will, the husband would inherit everything outright, and would then have flexibility in using the assets to meet his and the children’s needs. If he had died before her, or if we modify our example so that she is a divorced mother with two children, then the children’s share would be managed by someone she knew and trusted until they reach a more mature age than 19.

There are of course many other ways she could structure her estate plan depending on her wishes and circumstances. But a carefully thought out plan, made with legal advice, is invariably going to be better than relying on the intestacy provisions of the Estate Administration Act.

Please note that if you live outside of British Columbia, the law where you live dealing with how intestate estates are disbritubed will be different. For those who live in British Columbia, there are proposals to change the distribution scheme on an intestacy.

Lodge v. Fraser Health Authority

At the interstection of Tort and Estate, you may find Lodge v. Fraser Health Authority, 2009 BCCA 108.

Winston Lodge sued the Fraser Health Authority after his common-law wife’s rings went missing. Patricia Joan McKay passed away at Peace Arch Hospital, which is operated by the Fraser Health Authority. When she died, she was wearing three rings, but they went missing shortly thereafter.

Mr. Lodge sued for the value of the rings. He also claimed aggravated damages, which means he was claiming some additional compensation for mental distress. The case went before a jury.

Before the jury made a decision, the trial judge ruled that the Fraser Health Authority did not owe a duty to Mr. Lodge personally. The rings belonged to Patricia McKay, and the claim had to be made on behalf of her estate. The trial judge allowed Mr. Lodge to amend his claim to advance the claim on behalf of Ms. McKay’s estate, as her executor.

Although Mr. Lodge could then advance the claim for compensation for the rings on behalf of the estate, the trial judge ruled that he could not claim aggravated damages on behalf of the estate. The trial judge held that Mr. Lodge did not have a sufficiently direct interest in the rings to advance the aggravated damages claim for mental distress arising from loss of the rings. Mr. Lodge was the residual beneficiary of the estate, but Ms. McKay did not specifically gift the rings to Mr. Lodge. It was in theory possible that the rings would have to be sold to pay creditors, or someone could advance a Wills Variation Claim with the result that the rings would go to someone else. Nor could a claim for aggravated damages be advanced on behalf of the estate, because previous cases in British Columbia held that aggravated damages could not be awarded to the estate of a deceased person.

The jury found that the Fraser Health Authority had been negligent, and awarded the estate $10,000 for the loss of the value of the rings.

The Fraser Health Authority appealed the award of $10,000 for the loss of the value of the rings, and Mr. Lodge cross appealed the decision of the trial judge to not allow the jury to consider making an award of aggravated damages.

The British Columbia Court of Appeal dismissed the Fraser Health’s Authority’s appeal, and allowed Mr. Lodge’s appeal.

Mr. Justice Bauman held that the facts as pleaded, if proven, could support an award of aggravated damages to Mr. Lodge personally. There was a sufficiently close proximity between the negligence of the Fraser Health Authority in losing the rings and any mental suffering that Mr. Lodge experienced for the Fraser Health Authority to owe him personally a duty of care. It was not necessary for Mr. Lodge to establish a proprietary interest in the rings for him to claim compensation for mental distress arising from any tortuous interference with the body or property of his common-law wife.

The Court of Appeal ordered that Mr. Lodge would be permitted to have a new trial at which his claim for damages for aggravated damages for mental distress would be considered. He will still need to prove his claim if he chooses to have a new trial.

MacMichael v. Strocel

What happens if on a marriage breakdown the husband promises his former wife that if he dies before her, she will receive his pension benefits, but on his death the pension plan requires that the benefits be paid to his second wife?

The Supreme Court of British Columbia considered this issue in MacMichael v. Strocel, 2009 BCSC 290.

On the breakdown of his marriage to Fern MacMichael, James MacMichael agreed in their separation agreement, dated September 24, 1971, that in his will he would leave her any death benefit payable to his estate and all pension benefits.

He remarried in 1973.

In August of 2000, James MacMichael signed a new will in which he left Fern MacMichael $2500, any lump sum death benefit payable from his Federal Pension Plan and the Canada Pension Plan, and one-eight of the residue of his estate.

When he died on April 15, 2006, the survivors benefits under his pension plan were payable to his widow, Marie MacMichael. This is a requirement of the Public Service Superannuation Act, which governs the pension plan.

Fern MacMichael sued the executor of James MacMichael’s will for damages against the estate for breach of the separation agreement. She also sued Marie MacMichael for the survivorship pension benefits.

The executor of James MacMichael’s will acknowledged that the deceased had breached the separation agreement, but there were insufficient assets in his estate to fully compensate Fern MacMichael for the value of the survivors’ pension benefits.

Fern MacMichael asked the court to declare that James MacMichael held the survivors’ benefits in trust for her. She argued that the separation agreement created a trust, or alternatively that allowing Marie MacMichael to keep the benefits would unjustly enrich her.

Madam Justice Stromberg-Stein ruled that the widow was entitled to keep the survivors’ benefits. The separation agreement did not contain wording that would create an express trust for the benefits.

The Court also rejected the argument that the widow was unjustly enriched. To establish unjust enrichment, Fern MacMichael would need to establish three things:

that Marie MacMichael was enriched;
that Fern MacMichael suffered a deprivation; and
that there was no juristic reason for the enrichment.

In this case there is a juristic reason for the enrichment, namely the provision of the legislation governing the pension plan. Depriving James MacMichael’s widow of the survivors’ benefits to which she was entitled to under the pension plan would be unfair and unjust to her. Accordingly, it would be inappropriate for the court to impose a constructive trust on the benefits in favour of Fern MacMichael.

Madam Justice Stromberg-Stein granted a judgment for $48,000 against James MacMichael’s estate, but dismissed the claim against Marie MacMichael.

It should be noted that there have been significant changes in the laws in British Columbia relating to the division of pension plans on the marriage breakdown since the 1970s, when James and Fern MacMichael separated. These changes offer better protection to former spouses of pension plan members, but the law is complex. If you are going through a marriage breakdown, and you or your spouse in a member of a pension plan, you would be well advised to consult with a family-law lawyer with experience in dealing with pension plan divisions.

Have Estate-Planning Lawyers Failed to Adequately Market Their Services?

Yes, according to Alyssa DiRusso and Michael McCunney in their article “Marketing Wills” (2008) 16 Elder Law Journal 101.

The authors write that most American adults die without a will. They suggest that one of the reasons for the high rate of intestacy “is a wholesale failure of the legal industry to effectively market” wills.

They write that consumers of services and products often make decisions after receiving information passively through advertising. People dislike having to research services on their own. The information available to consumers affects not only their decision about whether to buy a product or services, but also the provider.

Because lawyers have not marketed their estate planning services, they have lost many potential clients, who die without a will.

I have tried to summarize this article briefly in order to make my own comments from the perspective of a lawyer in British Columbia. The article goes into far greater depth, and is well worth reading.

I do not know what percentage of British Columbians die without a will, but my guess is that the majority do die with a will, or at least the majority of those with any significant assets. There are of course many people who put off doing a will, and I have had clients in their 70s and 80s who see me to draft their first wills. But my sense is that as people age, they become more conscious of the need to have an estate plan.

But I have seen cases where people have died without a will, leaving a mess for their heirs.

On the whole, I don’t think lawyers in British Columbia have done a great job in marketing wills and estate planning.

Many wills are drafted by lawyers who practice primarily in other areas of law. I suspect that some lawyers are charging less for drafting wills and providing estate planning than for other services (which I think is a mistake, but I will leave that for another post), in which case they do not have an incentive to market the wills and estate planning aspects of their practice.

Lawyers who practice primarily in estate planning do market wills more, but we tend to do so in a more low-key manner, such as conducting seminars, or networking with financial planners and other professionals who may refer clients to us. I think that this low-key marketing is probably more effective for estate-planning lawyers than spending money on advertising in newspapers, radio or television, but it might not reach as many people.

I think that the internet does offer good opportunities for estate planning lawyers to market better. One of my goals in writing this blog is to communicate the importance of creating a good estate planning, with the assistance of estate planning lawyers. There are quite a few other lawyers in Canada and the United States who publish articles either on blogs or websites.

But I recognize that websites and blogs do not reach everyone. Most of my hits come from people googling specific topics, which tells me that many people are actively researching legal issues, rather than passively receiving information about estate planning.

Overall, I am inclined to agree with Alyssa DiRusso and Michael McCunney. We could do a better job.

If anyone reading this has any ideas on how estate-planning lawyers could market their services better, I would be glad to hear from you.

Cardston Courthouse Museum

I took this photograph of the historic Cardston Courthouse, now the municipal museum, last August in Cardston, Alberta.

Read Your Will Over Carefully Before Signing

In Milwarde-Yates v. Sipila, 2009 BCSC 277, Mr. Justice Williams was asked to interpret the late Joan Patricia Mary Milwarde-Yates’ will, which contained the following clause:

2.2 In this Will, a disposition to a person’s issue alive at a particular time “per stirpes” means the Trustee must divide the estate or the relevant part of it into a sufficient number of shares to make:

(a) five shares for each of the following, or three shares for each child of that person who died before that particular time but left issue alive at that particular time:
1. Daryl Joshua Sipila, of 417-531 West Bay Terrace, Victoria, B.C. V9A 5R3;
2. David Keelinge Homer, of 7094 Briarwood Place, born October 21, 1941;
3. John Twigg Homer, of 4565 East Sooke Road, RR6. Sooke, B.C. born July 18,
1940;
4 Ina Homer, of 4565 East Sooke Road, RR6. Sooke, B C. V0S 1N0, born November 24, 1954

(b) one share for each of the following;
1. Natasha Barrowman (Ne Reznechenko), of Lot 104 Mount Matheson, Sooke, B.C. V0S 1N0, born August 18, 1972;
2 Darcy Arnet of 4575 East Sooke Road, RR6 Sooke B.C. V0S 1N0;
3. Mark Woodger, of 621 Baxter Avenue, Victoria, BC V8Z 2H1;
4. Diane Nadene Johnstone, of 6 Trillium Court, Belleville, Ontario K8P 5M5

(c) I note that I have provided for my son, Devlyn Nicholson Milwarde-Yates “Devlyn”, born February 28, 1938 though the joint ownership of real property while I was alive. I understand that the property will revert to Devlyn on my death.

and the same principle shall be applied in any required further division of a share at a more remote generation because:
(i) each child (including a child who has died before that particular time) of that person will constitute a “stirp” or root for purposes of the division.
(ii) children will take in substitution for their parent, if their parent would have taken if alive at that particular time but died before that particular time;
(iii) children will not take if their parent is entitled to take and is alive at that particular time.

Don’t bother reading the quote again. It won’t make any more sense the second time you read it.

Although I don’t have any first hand knowledge about this will, I have a pretty good idea what happened. Lawyers work with precedents and use word-processing software. Sometimes the computer printers spit out some funny looking clauses. In this case it is apparent that the dispositive clauses (the parts that say who gets what) somehow got spliced into a clause defining the meaning of the term “per stirpes.” Perhaps it was pasted into the will in the wrong place.

Ms. Milwarde-Yates’ only living child, Devlyn Milwarde-Yates, argued that another clause in the will gave him the residue of the estate, or that his mother’s will failed to dispose of the residue of the estate. If the will did not dispose of the residue of the estate, then Devlyn Milwarde-Yates would receive it according the law in British Columbia for intestate estates. The evidence indicated that Ms. Milwarde-Yates did not want to leave her estate to her son.

After considering both the will and the evidence of the surrounding circumstances Mr. Justice Williams held that Ms. Milwarde-Yates intended to leave the residue to her estate to the beneficiaries named in paragraph 2.2, and interpreted that clause as though the first sentence read: “the Trustee must divide the estate into a sufficient number of shares to make….”

Mr. Justice Williams said:

In this case, I am convinced that the Deceased intended to dispose of her estate by way of her will, and went to considerable effort to accomplish that. I am also satisfied that she intended to pass the residue of that estate to the eight persons that she had selected, and whose names are set out in paragraph 2.2. It is clear to me that the purpose of that particular paragraph, however badly drawn, and located as it was under a heading that was obviously incorrect, was to bequeath the residue of her estate to them in the proportions stipulated. Indeed, the third of the sub-paragraphs, wherein she speaks of having made other provision for her son, supports my view of the matter, in that it is a logical adjunct to having given the bulk of her estate to someone other than her only child. It provides an explanation for such a disposition.

[76] In the result, I find that paragraph 2.2 should be construed in the manner set out above, with the additional direction that the word ‘shares’ should be preceded by the word ‘equal’. In that way, the Deceased’s will has the effect of advancing her obvious intentions. The plainly unintended result of an intestacy is avoided. I am satisfied that the bequests that result are not simply “drawn out of thin air” but are a reasonable exercise of the Court’s jurisdiction to construe a will.

How do we avoid this kind of problem?

In many cases lawyers catch these kinds of glitches on reading the first draft of a will, before the clients ever see a draft. But we all do make mistakes. Although there is no doubt that it is the
lawyer’s responsibility to make sure that the final draft meets a reasonable, professional standards, clients can and should be involved in the process.

When feasible, I like to send draft wills to my clients before they come in to sign the wills. I like to send the drafts by email. I ask my clients to read the will over carefully and advise me ahead of their next appointment if they notice any errors. This allows my clients to read the drafts in the comfort of their own homes, at their own pace. From time to time, my clients do pick up on some errors, such as a typographical error or wrong address.

There is some debate among estate lawyers about whether sending a draft out is a good practice. Some lawyers are concerned that their clients might sign the will themselves, perhaps improperly, instead of making another appointment to sign the will in the lawyer’s office. That has not been my experience.

When I meet with my clients to sign wills, I go over each clause in the will. I ask my clients to pay particular attention to the dispositive clauses. I also ask my clients to confirm the spelling of all names.

No system is foolproof. But with three people--the lawyer, the lawyer’s assistant and the client-- going over the will carefully, the risk that the final product will be deficient is minimal.

Executor Fees: Morrison Estate

In British Columbia, section 88 of the Trustee Act provides that the court may award a trustee, executor or an administrator a fair and reasonable allowance not exceeding five percent of income and capital of an estate as remuneration. This applies unless a contract, will or trust agreement fixes a different amount (which may exceed five percent). There is also a provision for an annual care and management fee not exceeding 0.4 % of the average value of the assets in each year.

Some executors or other personal representatives may be under the mistaken impression that they are entitled to five percent. If all of the beneficiaries are capacitated adults, they may consent to five percent, but in cases where the court determines the executor’s remuneration, the awards are usually below five percent.

A recent decision of Master Young, in Re Morrison Estate, 2009 BCSC 217, illustrates some of the factors the courts consider when determining remuneration.

In his will, Arthur Leslie Morrison appointed his son Arthur Leslie Morrison Jr. as his executor, and divided his estate equally among all of Arthur Morrison’s four children.

Arthur Morrison Jr. had a good relationship with one of his sisters, but not with his other two siblings. When he distributed the estate, he deducted certain amounts for debts he claimed two of his siblings, Robert Morrison and Gail Yochim, had owed his father. He also took a fee equal to five percent of the value of the estate. He sent his siblings cheques and releases. The two siblings receiving a lesser share cashed the cheques, but did not sign the releases.

Arthur Morrison Jr. passed his accounts before Master Young. A passing of accounts is a hearing before a Supreme Court of British Columbia Master or Registrar in which executor’s accounts are reviewed, and the court may recommend or determine the amount of the executor’s remuneration.

Arthur Morrison Jr. argued that because his siblings cashed their cheques, they were not entitled to challenge his accounts. Master Young rejected this argument.

Master Young found that Robert Morrison did owe his father some of the amount that Arthur Morrison Jr. deducted from his share, but not all of it. She also found that Gail Yochim was not indebted to her father at his death.

Because the will did not fix the amount of the remuneration (although it did allow Arthur Morrison Jr. to take remuneration before court approval), section 88 of the Trustee Act applied.

Master Young found that the estate administration was relatively simple. The estate consisted primarily of term investments at two banks. “Minimal work was required by the executor to gather the assets and to distribute them.”

The value of the estate was about $486,000.

Master Young found that the executor exercised skill and ability below an acceptable standard. He did not administer the estate in a neutral, balanced manner among the beneficiaries. He became involved in ongoing disputes with two of his siblings. When they questioned his accounts, he took the unreasonable position that because they cashed their cheques, they were not entitled to further information.

Master Young fixed Arthur Morrison Jr.’s remuneration at two percent of the value of the estate, being the sum of $10,059. He is required to reimburse the estate for $14,275 in respect of addition fees he paid to himself out of his father’s estate.

Canadian Centre for Elder Law Assisted Living Project

The Canadian Centre for Elder Law is working on a project entitled "Assisted Living: Past, Present and Future Legal Trends in Canada." According to the overview:

This project provides a starting point to engage in a national conversation about a critical "middle option" of health / housing in Canada. This middle option, called "supportive housing / assisted living" in this project, lies at the centre of a seniors' housing continuum.

They have published a study paper here, and are inviting comments by email to ccels@bcli.org.