CBC Story on the B.C. Public Guardian and Trustee

I heard a story the other day on the Canadian Broadcasting Corporation airing complaints about the Public Guardian and Trustee of British Columbia. I heard the story on radio and television. I have since found it on the CBC website here.

Some of the criticisms were directed at the Public Guardian and Trustee’s handling of allegations of financial abuse, and of the Public Guardian and Trustee’s powers. These powers include the power to become appointed as a guardian of a mentally incapable person, even if that person has already appointed an attorney under a power of attorney.

I do not know anything about the specific cases referred to in the CBC’s story, and my comments are not directed at those cases.

But there is another perspective. I say this despite the frustrations I sometimes feel in dealing with the Public Guardian and Trustee’s office (or with many other large bureaucracies).

I will illustrate by making up a fictional case, but it is based on a variety of circumstances that I have come across in my law practice.

Steve is concerned about his aunt, who is 95, and lives alone. She is a widow, with no children. In the last three years, Steve has noticed that she has memory problems. Steve is close to his aunt. She remembers him, but she can’t seem to remember his children’s names when they visit her.

Steve recently learned that his aunt gave her niece (Steve’s cousin) a power of attorney, and transferred her house into a joint tenancy with the niece about six months ago. His cousin has been doing some of his aunt’s banking for her.

Steve’s aunt had not been particularly close with her niece, until about a year ago, when her niece started to visit her aunt several times a week. The niece recently bought a Porsche. Steve does not know where his cousin got the money to buy a Porsche, but he does not believe that his cousin has substantial wealth.

Steve suspects, but cannot prove, that his cousin is taking financial advantage of their aunt. He does not have a power of attorney for her.

Steve goes to a lawyer for advice.

Even if Steve were inclined to sue his cousin, he cannot do so. He has no authority to act on his aunt’s behalf. In British Columbia, there is a legal presumption that Steve’s aunt has capacity to make her own decisions, and only she can sue.

Nor does Steve have any real way of investigating what has happened. He has no right to review his aunt’s bank accounts, or insist that his cousin provide him with an accounting.

If Steve wants authority to investigate or sue on behalf of his aunt, he could apply to the Supreme Court of British Columbia to have his aunt declared incapable of managing his affairs, and for him to be appointed as her committee (or adult guardian). He would need affidavit evidence from two doctors that his aunt is incapable. The application would cost thousands of dollars, and likely take at least a couple of months. His cousin may contest his appointment. If appointed, Steve would have the significant responsibilities of managing his aunt’s finances.

Alternatively, Steve could contact the Public Guardian and Trustee’s office and ask for an investigation.

The Public Guardian and Trustee has the powers to investigate, and if there is evidence of abuse, to have Steve’s aunt’s bank accounts and other assets temporarily frozen to prevent further abuse.

In the circumstances described above, the Public Guardian and Trustee’s office might find that Steve’s aunt is still capable of making her own decisions, and that Steve’s cousin has done nothing wrong. Steve’s aunt’s memory loss may be minimal, and her functioning otherwise good. Steve’s aunt might have transferred the house into a joint tenancy knowing full well what she was doing, as part of her estate planning (although it is probably not estate planning that I would recommend). Steve’s cousin may be using the power of attorney solely for the purpose of helping her aunt. His cousin may have had other funds to buy the Porsche. In these circumstances, the Public Guardian and Trustee would need not do anything more.

But if Steve’s aunt were not capable of managing her own affairs, and if a director of a mental health facility or psychiatric unit signs a certificate that his aunt is incapable, then the Public Guardian and Trustee could be appointed as her guardian.

The Public Guardian and Trustee could then sue Steve’s cousin for the return of the title of Steve’s aunt’s house back into her own name. If Steve’s cousin received money from their aunt, the Public Guardian and Trustee could also sue for that money. It would ultimately be up to the court (not the Public Guardian and Trustee) to decide whether Steve’s cousin is entitled to keep her interest in the house and any funds she received after a trial.

I stress that I am not commenting on the specific cases referred to in the CBC story. Nor am I suggesting that the current legislation in British Columbia does not need reform. It does. In fact the Legislative Assembly has passed new legislation, but the government has not brought the new legislation into effect.

But I do think it is necessary for the Public Guardian and Trustee to have sufficient powers to investigate, and where necessary to take steps to remedy, allegations of financial abuse.

New Civil Procedure Rules in British Columbia, Effective July 1, 2010

The British Columbia Ministry of Attorney General has announced that new rules of civil procedure for Supreme Court of British Columbia proceedings will be brought into effect on July 1, 2010. There is also a new fee schedule for court fees. You can read the press release here.

The intent of the changes is to modernize the rules, reduce the expense to litigants, and make the amount of process involved in a lawsuit proportionate with the importance of the suit and the amount in dispute.

I have skimmed the new rules. My initial reaction is that some of the changes may reduce expense, but some may have the opposite effect. Some of the rules are clearer than the current rules. The language is more modern, but some anachronisms remain.

I plan to write posts on some of the rules and forms, especially as they relate to estates and estate litigation.

You can read the rules here. You may also wish to refer to the B.C. Justice Review Forum, which includes some key features here.

Michael Jackson's Estate Plan

I don’t know if an estate plan has ever received as much media attention as Michael Jackson’s. Yet, the way he set up his estate plan the media are left to speculate, at least for the time being, on the identity of his beneficiaries. I hope he finally does get some privacy.

Michael Jackson set up a trust during his lifetime. A trust agreement is a private document. It does not need to be filed in court. I assume that he held substantial assets in the trust, but because it is private, I don’t know what assets are in it.

His will was made public. You can look at it here. It tells us the names of his executors, and the names of the people he wished to appoint as guardians of his children. But according to the will, any assets he held in his name at death will go to his private trust. This is sometimes called a “pour-over will.” So we don’t know who the ultimate beneficiaries are.

How well would this plan have worked if Michael Jackson were a British Columbian, instead of a Californian?

Probably not as well.

We do of course have trusts in British Columbia, and well developed trust laws (with the same antecedents in English law as California). You could also do a pour–over will naming the trust as your beneficiary.

The difficulty is with the Canadian income tax system. In Canada if you transfer assets into an inter vivos (or living) trust, you are deemed to have disposed of those assets at fair market value. This may trigger capital gains or other taxes if the assets have increased in value. Furthermore, if you hold the same assets in the trust for twenty one years or more, the trust is deemed to have disposed those assets every twenty one years, again triggering taxes.

There are some exceptions to these tax rules such as alter-ego and joint partner trusts, but you must be at least 65 to set up one of these trusts. Sadly, Michael Jackson was only 50 when he died.

I am not saying that Michael Jackson couldn’t do similar estate planning in British Columbia. He could of course pay the taxes when he transferred the assets into the trust, and as well any deemed dispositions every twenty one years. He could also have transferred assets that do not appreciate much, or perhaps he could have transferred just a nominal amount into the trust. He could leave the other assets in his own name, and do a pour-over will. He might have thereby been able to keep the identity of his ultimate beneficiaries confidential.

But if Michael Jackson’s will were probated in British Columbia, the assets he owned in his name flowing to the executors would have to be listed in a disclosure document exhibited to an affidavit filed in court. This disclosure document would be public.

Furthermore, his executors would have to pay a tax in British Columbia, called probate fees, of about 1.4 percent of the value of the assets passing to the executors when the court issued the grant of probate. (The probate fees would not necessarily apply to all of his assets, but if he were a resident of British Columbia they would apply to his shares of any companies holding his substantial copyright interests.)

Feuding Executors: Wilson v. Heathcote

If you appoint two executors of your will to act together, it is important that you choose people who can work well together. If they don’t work well with one another, the likely result will be frustration and delay in the administration of your estate. What can be done about executors who won’t work well with each other?

Rudolf Martin had appointed Rick Wilson and John Heathcote as his executors and trustees. He appointed his accountant Ken Lee as his alternate executor and trustee in case either Mr. Wilson or Mr. Heathcote became unwilling or unable to act.

After Mr. Martin’s death on November 24, 2007, Mr. Wilson and Mr. Heathcote did agree to act as executors, and applied for and received a grant of probate of his will.

Unfortunately, there were a number of disagreements between them. Perhaps the most significant disagreements revolved around the handling of the sale of Mr. Martin’s apartment building. Mr. Heathcote wanted to deal early on with an offer to purchase the building. Mr. Wilson, on the other hand, wanted the building appraised and listed with a real estate agent to expose the apartment to the market.

There were further disagreements on how to handle the estate funds, with Mr. Wilson favouring handling funds through the executors’ lawyer’s trust account, and Mr. Heathcote favouring setting up an estate account managed directly by the executors.

The relationship between the executors was dysfunctional.

Mr. Wilson applied to the Supreme Court of British Columbia to remove Mr. Heathcote as a trustee.

Mr. Justice Cohen granted an order removing Mr. Heathcote and appointing Mr. Lee in his place in his decision in Wilson v. Heathcote, 2009 BCSC 554 . Although the court did not make any finding of misconduct, Mr. Justice Cohen held that “the Court may intervene to remove a trustee in circumstances where the relationship between trustees has deteriorated to such an extent that the proper and efficient administration of the trust is improbable, thus making removal necessary and expedient to protect the interests of the beneficiaries.”

He found that Mr. Heathcote’s manner and conduct, including making unsupported allegations that Mr. Wilson had acted improperly, were the major cause of the breakdown. Accordingly, Mr. Justice Cohen found that it was appropriate to remove Mr. Heathcote.

Blairmore Historic Courthouse, Blairmore, Alberta

I took this photograph while driving through the Crowsnest Pass with my sons last August. According to Wikipedia, Blairmore elected Canada's first communist town council (were there others?), and the Crowsnest Pass was the site of Canada's last train robbery. It is also know for rum runners (historically, not now), and is close to the Frank Slide. If you are traveling in the area, I highly recommend the interpretive centre at Frank Slide.The courthouse is now used as an educational facility.

Chinn v. Hanrieder

Hugo Hanrieder wanted to leave some mineral rights in Saskatchewan to his two children, Bette Chinn and Dennis Hanrieder, who were the children from his first marriage.

He also wanted to his interest in his house, Registered Retirement Savings Plans and life insurance, and personal effects to go to his wife, Ingrid Hanrieder. He wanted his other assets to be held in trust for the benefit of his wife, and two children. This was his second marriage.

In April, 1989, Hugo Hanrieder instructed his lawyer to draft a will reflecting his intentions.

But, as his lawyer discovered, Hugo Hanrieder did not then have the legal right to leave his interest in the mineral rights to his children. Those mineral rights were held by him as a trustee of a trust settled by his mother in 1973 for the benefit of him and his siblings. The terms of the trust provided that on his death, his interest in the mineral rights would go to his spouse. He would need to get all of the beneficiaries of the trust to agree to change the trust agreement in order to obtain the right leave the mineral rights to his children, something that would be costly and inconvenient.

After he found out that he could not leave the mineral rights to his children, he told each of them in his wife’s presence of his intention that they, his children, would receive the mineral rights on his death. According to Dennis Hanrieder, when his father told him about what he wanted to do with the mineral rights, Ingrid Hanrieder said “I have no interest in them. I have money of my own.” Bette Chinn said that after her father told her of his intentions concerning the mineral rights, she asked Ingrid Hanrieder if that was okay. Ingrid Hanrieder said it was.

When Hugo Hanrieder and Ingrid Hanrieder bought a condominium in 1993, and instructed the lawyer handing the purchase to register the condominium in both of their names as joint tenants.

After Hugo Hanrieder’s death on December 8, 1997, Ingrid Hanrieder found out that their condominium had been registered in their names as tenants in common rather than as joint tenants. As a surviving joint tenant, Ingrid Hanrieder would have been entitled to transfer the title of the house into her sole name. But if the house were held as tenants in common, Hugo Hanrieder’s interest would fall into his estate to be dealt with under his will, in which case the children would have an interest in the house.

In May, 1998, Ingrid Hanrieder’s lawyer asked Hugo Hanrieder’s children to release any interest they might have in the house to allow it to go into Ingrid Hanrieder’s sold name. They agreed, but asked in return, for Ingrid Hanrieder to transfer her interest in the mineral rights to them. She agreed.

Until then, the mineral rights generated very little income.

After agreeing to transfer the mineral rights, Ingrid Hanrieder received a letter from Chevron Canada Resources advising that the mineral rights were now producing. Chevron advised that they would be paying back royalties of $43,500.

Ingrid Hanrieder refused to transfer the mineral rights to the children, and denied that she ever agreed to do so.

The children sued, alleging that Ingrid Hanrieder held the mineral rights in a secret trust for them, and that she had breached her agreement to transfer the rights to them.

What is a secret trust?

Much of the case law on secret trusts arise out of wills. The testator of the will provides a gift in the will to person A, intending that she hold it or give it to person B. On the face of the will, person A is entitled to the gift. There is no mention of person B in the will. Therefore, the trust is said to be a “secret trust.”

To succeed, the children would have to prove that their father intended for Ingrid Hanrieder to give the mineral rights to his children, that he communicated his intentions to her, and that she accepted the obligation to give the mineral rights to his children.

In Chinn v. Hanrieder, 2009 BCSC 635, Madam Justice Loo held that Hugo Hanrieder created a secret trust for the benefit of his children. She also held that Ingrid Hanrieder had made and broke her agreement with the children to transfer the mineral rights in exchange for their giving up any interest in the house.

Ingrid Hanrieder was required to pay the children damages for the royalties she and a company she incorporated received from the mineral rights, which amounted to at least $225,958.

British Columbia Association of Community Response Networks Online Auction

The B.C. Association of Community Response Networks is holding its third annual online auction now. You can check out this link with the online auction items until June 30, 2009.