Estates Disputes in British Columbia: A Litigator's Guide

The Continue Legal Education Society of British Columbia has published a new manual entitled Estates Disputes in British Columbia: A Litigator's Guide. The Chapters are:

1.  Initial Considerations in Estate Disputes

2.  Conflict of Laws in Estate Disputes

3.  Resolving Estate Disputes through Mediation

4.  Proceeding with Estate Litigation

5.  Validity of Wills Disputes

6.  Interpretation, Rectification, and Construction of Wills Disputes

7.  Curing a Defective Will

8.  Wills Variation Claims

9.  Disputes Regarding Attorneys

10.  Disputes Regarding Personal Representatives and Trustees

11.  Committeeship Applications and Claims Against Committees

12.  Inter Vivos Trust Disputes

13.  Inter Vivos Transfer Disputes

14.  Life Insurance, Registered Account, and Benefit Plan Beneficiary Designation Disputes

15.  Resulting Trusts, Unjust Enrichment, Constructive Trusts, and Secret Trusts

16.  Issues of Spousal Status in Estate Disputes

17.  Administration of Intestate Estates Disputes

18.  Passing of Accounts and Trustee Remuneration Disputes

Shahdin Farsai of our firm authored the chapter, Passing Accounts and Trustee Remuneration Disputes. I am one of the co-editors of the book. 

 

Assessment of Older Adults with Diminished Capacity: A Handbook for Lawyers

Lawyers are required to make assessments of their clients’ capacity to make legal decisions, and sign legal documents. This is especially true in a wills and estates practice, which will often include incapacity planning, such as making enduring powers of attorney, and applications to court for guardianship of adults.

In my experience, assessing capacity is one of the most difficult challenges estate-planning lawyers face. Few of us lawyers have any training in medicine, psychiatry or psychology. We may often fail to identify significant cognitive or other disability, or fail to understand the implications of signs of diminished capacity. On the other hand, lawyers can’t delegate the decision about whether or how to proceed with a legal transaction to those who do have clinical training and experience. The criteria for capacity are legal, and few physicians or psychologists have legal training. Furthermore, in the end, it is the lawyer who has to exercise his or her judgment. For example, the lawyer must decide whether to draft and witness the will if the lawyer has questions about the client’s capacity.

I have just finished reading Assessment of Older Adults with Diminished Capacity: A Handbook for Lawyers, published by the American Bar Association Commission on Law and Aging and the American Psychological Association in 2005. It is a useful resource for Canadian estate-planning lawyers as well as American. The Handbook is available online here.

The Handbook offers practical guidance for lawyers faced with questions about clients’ capacity. The Handbook considers the following questions:

1.   What are legal standards of diminished capacity?

2.   What are clinical models of capacity?

3.   What signs of diminished capacity should a lawyer be observing?

4.   What mitigating factors should a lawyer take into account?

5.   What legal elements should a lawyer consider?

6.   What factors from ethical rules should lawyer consider?

7.   How might a lawyer categorize judgments about client capacity?

8.   Should a lawyer use formal clinical assessment instruments?

9.   What techniques can lawyers use to enhance client capacity?

10. What are the pros and cons of seeking an opinion of a clinician?

11. What if the client’s ability to consent to a referral is unclear?

12. What are the benefits for the lawyer of a private consultation with a clinician?

13. How can a lawyer identify an appropriate clinician to make a capacity assessment?

14. What information should a lawyer provide to a clinician in making a referral?

15. What information should the lawyer look for in an assessment report?

16. How does a clinical capacity evaluation relate to the lawyer’s judgment of capacity?

The appendices include a capacity assessment algorithm for lawyers, two case studies, a guide to psychological and neuropsychological instruments, and an overview of dementia.

The American Bar Association Commission on Law and Aging and the American Psychological Association has also published a companion paper (which I have not read) entitled, Assessment of Older Adults with DiminishedCapacity: A Handbook for Psychologist.

John Poyser’s Capacity and Undue Influence

John E. S. Poyser has written a remarkable textbook, Capacity and Undue Influence, published this year by Thomas Reuters Canada Limited. The book is about gratuitous wealth transfers including by will, beneficiary designations, through jointures, inter vivos trusts and gifts directly to beneficiaries. Mr. Poyser does not deal with (or purport to deal with) capacity for other legal transactions, such as contracts, except peripherally to assist in explaining capacity to make testamentary and inter vivos gifts.

If, by focusing on gratuitous wealth transfers, the topic is narrower than the book’s title might imply, it is also much richer. In addition to discussing the criteria for capacity to make a will, Mr. Poyser also discusses the requirements of knowledge of approval of the contents of a will, including the doctrine of righteousness, in considerable depth. Estate litigators will be familiar with challenges to inter vivos gifts on the basis of undue influence, including claims founded on relationships of dependence or potential dominance, but how about challenges based on unconscionable bargains and unconscionable procurement? Although unconscionable bargains may be more closely associated with contracts, Mr. Poyser explains the principles and their applicability to gratuitous gifts. Unconscionable procurement? I had never heard of it before. Although perhaps the doctrine is a bit dusty, Mr. Poyser makes a good case that unconscionable procurement is applicable in modern times.

Estate disputes are chock-full of presumptions: of capacity, of knowledge and approval, of undue influence. What are they really, and what are their implications? Mr. Poyser offers common-sense explanations that they are usually evidentiary in nature, that they do not change the legal burden, and that they are indeed founded on common sense (I think the expression “common sense” appears more often in the book than any other). To paraphrase, the presumption that a person has capacity to make a will reflects that most people do in fact have that capacity. It is only if there is other evidence that comes to light of suspicious circumstances, such as that the will maker was diagnosed with dementia, that the court needs to look further.

Mr. Poyser articulates a coherent analysis of capacity to make gratuitous wealth transfers, whether by will, beneficiary designation, or inter vivos transfer. In its broadest the test is as set out in Ball v. Mannin, (1829) 4 E.R. 1241, that a person must be “ capable of understanding what he did by executing the deed in question when its general purport was fully explain to him.”

The courts have developed more detailed criteria for making a will, following the famous words of Chief Justice Cockburn, in Banks v. Goodfellow, (1870), L.R. 5 Q.B. 549 at 565:  

It is essential to the exercise of such a power that a testator shall understand the nature of the act and its effects; shall understand the extent of the property of which he is disposing; shall be able to comprehend and appreciate the claims to which he ought to give effect; and with a view to the latter object, that no disorder of the mind shall poison his affections, pervert his sense of right, or prevent the exercise of his natural faculties — that no insane delusion shall influence his will in disposing of his property and bring about a disposal of it which, if the mind had been sound, would not been made.

Mr. Poyser neatly dissects the criteria set out in the above-quoted passage. He also makes the case that the level of capacity to make a will or codicil may vary depending on the specific document. A very complex will may require a higher level of functioning than a simple one. Making a codicil that only changes the executors, or that makes a small gift relative to the will-maker’s wealth, might not require that the will maker fully meet the criteria in Banks v. Goodfellow.

In reading the cases, I have always found it difficult to find a clear articulation of the criteria for capacity to make inter vivos gifts. Some courts have said that the level of capacity is lower than the capacity to make a will, which I have never found very satisfactory.

Mr. Poyser’s makes an overwhelming case that the requisite capacity is not related to whether a gift is inter vivos or by will, but rather capacity is transaction specific. Someone who wishes to make a gift of all or most of his assets during his lifetime, effectively depriving the beneficiaries of his will of his estate, needs to meet the full Banks v. Goodfellow criteria. Indeed, the donor would also have to appreciate the effect of giving away his property on his own future financial security to have capacity to make the gift. On the other hand, someone making a trifling gift need only have a limited capacity to understand that she was giving something of small value to the beneficiary. Because of the small impact on the donor and her estate plan, she would not have to have the same level of comprehension as making a will disposing of everything. Intermediate gifts require intermediate levels of mental functioning.

In light of the recent change in legislation in British Columbia affecting challenges to wills in which undue influence is alleged, by creating a presumption of undue influence if it is shown that the person alleged to have exercised undue influence was in a position where the potential for dependence or domination of the will maker was present, I was particularly interested in Mr. Poyser’s discussion of the difference between undue influence in will challenges and undue influence in respect of inter vivos gifts.

Mr. Poyser considers inter vivos undue influence as a separate doctrine from testamentary undue influence. The presumption, which was recently changed in British Columbia, is but one of the differences between challenging a will and challenging an inter vivos gift on the basis of undue influence.

To successfully challenge a will, or gift in a will, on the basis of undue influence, the attacker must prove on a balance of probabilities that someone exercised undue influence over the will maker, the result of which was that the will maker made a will or gift in the will against his or her own true wishes. Undue influence in this context is a form of coercion. It may be proven by circumstantial evidence, but actual undue influence must be shown. If proven, the will or gift in the will is void. 

Mr. Poyser traces the development of inter vivos undue influence, which, in contrast, to undue influence in the wills context, flows out of equity. Where the person who has received a significant inter vivos gift was in a relationship with the donor where he or she was in a position to dominate the donor, then a presumption of undue influence arises. Furthermore, where such a relationship is present, the type of pressure required to set aside the gift on the basis of undue influence may be milder, particularly if the donor is vulnerable.  The underlying premise of inter vivos undue influence is to protect donors from victimization. If the person attacking the transfer succeeds on the basis of equitable undue influence, the transfer is voidable, rather than void, and the person benefiting may raise equitable defences to the claim such as those based on unreasonable delay in pursing a claim.

This may have implications for British Columbia’s new provision in section 52 of the Wills, Estates, and Succession Act, mentioned above, which imports the burden of proof in will challenges from inter vivos undue influence where there is a potential for dependence or domination. However, section 52 does not expressly import the full equitable doctrine. Apart from the burden on the person found to be in a special relationship to show that he or she did not exercise undue influence over the will maker, what relevance will the principles of inter vivos undue influence have in British Columbia to will challenges based on undue influence? Section 52 just came into effect this spring, but perhaps there will be cases considering section 52 to provide fodder for Mr. Poyser’s next edition.

Mr. Poyser thoroughly canvasses the Canadian cases on wealth transfers, including leading appellate and illustrative trial decisions. He also has included analysis of leading English cases, including fairly recent decisions, as well as some leading cases from other common law jurisdictions, particularly Australia and New Zealand. For estate litigation lawyers, the book provides an easy source for broadening research beyond their own jurisdictions.

For solicitors, I particularly recommend Chapters 12 and 13, “Controlling for Capacity During Planning,” and “Controlling for Other Types of Challenges.”  These chapters offer analysis of a solicitor’s role when capacity may be in doubt or there are concerns about possible undue influence or other challenges. Mr. Poyser offers some interesting ideas about what a solicitor ought to do when there may be doubts about capacity. Of course, conduct a thorough interview, without potential beneficiaries present, and make good notes. But Mr. Poyser’s suggestions go well beyond that. He has some suggested questions. Consider a separate retainer to assess capacity. He provides some sample letters to physicians, some of which are quite extensive, requesting opinions on capacity. 

Mr. Poyser has an insightful and provocative discussion about whether the solicitor should go ahead with a will for a client whose capacity is in a grey area, and what further steps the solicitor might take to identify any concerns about capacity.

Great legal textbooks both reflect the law and affect its development. Capacity and Undue Influence reflects the law well. In time it seems quite likely that it will, as my other favourite legal textbook, Waters’ Law of Trusts in Canada (now in its fourth edition) has done, affect the future development of the law as well.

John Poyser is both a partner in the Winnipeg law firm Tradition Law LLP and a principal of the Wealth and Estate Law Group in Calgary. He is also a co-author with Larry H. Frostiak and Grace Chow of Taxation of Trusts and Estates: APractitioner's Guide 2014, Carswell.

Fat Cats & Lucky Dogs

I have just finished reading Fat Cats & Lucky Dogs: How to leave (some of) your estate to your pet by Barry Seltzer and Gerry Beyer, and published by Prism Publishing Inc., 2010.

Fat Cats & Lucky Dogs offers practical advice on planning for your companion animals in case you die before them or you become incapacitated and are no longer able to care for your pets. The authors identify five situations in which your pets can run into problems. They are:

1. When you are incapacitated.
2. Immediately after you die and your pets are home alone.
3. Between the time you die and the time your will is read.
4. Between death and the admission of your will to probate.
5. The ongoing period after your death.

You can plan for each of these five situations, and the authors offer suggestions for each of them, ranging from informal arrangements such as asking a friend to take care of your pet and then leaving your pet to that person in your will, to formal trusts with funds provided on an ongoing basis to your caregiver, with an independent trustee and protector to monitor the administration of the trust.

This book is written for pet owners, and is easy to read. As the title implies, the book has a nice playful style, with pet trivia or “factoids,” and humourous quotations. One of my favourite quotations has to come from one of my favourite humour writers, Dave Barry:

You can say any fool thing to a dog, and the dog will give you this look that says, ‘My God, you’re RIGHT! I NEVER would’ve thought of that!’

Fat Cats & Lucky Dogs sets out the legal framework for estate planning for pets, in Canada and the United States, and to a lesser extent in Australia, New Zealand and the United Kingdom. As the authors note, the law does vary from place to place. I found it quite interesting to learn that many States in the United States have legislation recognizing and facilitating the creation of trusts for animals.

There is a variety of resources in the appendices, such as a summary of state laws, a list of prohibited versus acceptable animals as pets, and contact information for animal retirement homes, temporary pet care providers and sanctuaries.

Fat Cats & Lucky Dogs was helpful to me as an estate-planning lawyer in raising my awareness of some of the issues those of my clients with pets should consider in their estate and incapacity planning.

Barry Seltzer is a lawyer practicing in Richmond Hill, Ontario. Gerry Beyer is Governor Preston E. Smith Regents Professor of Law, at Texas Tech University School of Law. Professor Beyer is also the author of Wills, Trusts & Estates Prof Blog.

The Family War

I recommend The Family War: Winning the Inheritance Battle to anyone who is involved in an estate lawsuit, or who is thinking about starting a lawsuit about a will or an estate. I also recommend this book to anyone who is concerned that someone might challenge his or her estate plan.

The Family War is written by Jordan M. Atin, Barry Fish and Les Kotzer. Mr. Atin is a senior associate with the law firm of Hull & Hull LLP in Toronto (the firm that authors the Toronto Estate Law Blog). Mr. Fish is senior partner at Fish and Associates, in Thornhill, Ontario. Mr. Kotzer is an associate lawyer at Fish and Associates. This book was published Continental Atlantic Publications Inc. in 2006. You can order it here.

I find the subtitle “Winning the Inheritance Battle” ironic, because the authors spell out the emotional toll estate disputes take on the participants, including the winners:

Rarely can the winner of a Family War declare that his or her victory was absolute. You must look long and hard to find someone who takes a brother or sister all the way through the court system, completely conquers them, and simply doesn’t care about the emotional fallout that such a victory leaves in its wake. There is almost never an absolute winner. The fact that family members are fighting means that the War will have a cost. Are you a winner if the victory means destroyed relationships with other family members or feelings of shame or guilt if you feel that you have let your parents down? These costs will continue long after the litigation ends and the lawyers are paid.

I agree.

The Family War sets out some examples of estate disputes, discusses the types of disputes that arise in estate litigation, offers advice for preventing disputes, and guidance for resolving disputes. I think the discussion under “After Death Strategies – What Children Can Do” in Chapter 6 “Strategies to Prevent Estate Litigation,” may be particularly helpful to those involved in estate disputes. The overriding message: be reasonable.

It is not a textbook of substantive law for lawyers. The authors discuss the law in a general way, and point out that the law will vary from province to province in Canada. It is a useful starting point for non-lawyers trying to understand the legal issues in estate disputes.

This book is written in plain language, accessible to all.

The Family War will not replace the services of a lawyer who practices this area of law (nor will any other book), but it is a great supplement to using the services of a lawyer. If you are involved in an estate dispute, reading this book may help reduce your legal costs by giving you a good perspective, and sound practical advice for working with your lawyer.

Practitioner’s Guide to Trusts, Estates and Trust Returns

If I heard someone say “readable tax law,” I would be tempted to ask “readable by whom?” With all of the cross-references, never-ending sentences, formulas, exceptions, and exceptions to exceptions, the Income Tax Act, Canada, is pure torture; at least I find it such.

Larry H. Frostiak and John E.S. Poyser have remarkable skills in explaining tax law in an easy-to-read manner. They have done so in the 2006-2007 edition of their book, Practitioner’s Guide to Trusts, Estates and Trust Returns, Toronto: (Thompson Canada Limited, 2006).

My only criticism of the book is that I don’t think the title fully captures the breadth of the topics. This book is divided into four parts: Estate and Trust Planning, Taxation of Trusts and Beneficiaries, Filing Requirements and Administration by CRA [Canada Revenue Agency], and Preparing the T3 Trust Information and Income Tax Return.

The first two parts were of greatest interest to me as an estate planning lawyer. In Chapter 2, the authors review the tax features of personal estate planning techniques, including testamentary trusts, inter vivos trusts (including alter ego and joint partner trusts), spousal trusts, insurance trusts, charitable remainder trusts. Mr. Frostiak and Mr. Poyser write about potential pitfalls, matters of critical importance to practitioners.

Chapters 3 through 5 contain a discussion of taxation rules for trusts, beneficiaries of trusts, and those who contribute to trusts. In Chapter 6, the writers talk about the tax rules when property is transferred out of a trust.

I find these to be complex topics, but they are not written that way. The text sets out the rules in plain language, and then the footnotes cross-references the relevant Income Tax Act sections. This avoids the mind numbing experience of staring at the impenetrable prose of the Income Tax Act in the middle of the page. The authors also cite relevant Interpretation Bulletins, and other documents setting out Canada Revenue Agency’s views.

In Chapter 7, Mr. Poyser, and Mr. Frostiak discuss the use of trusts. They talk about techniques to minimize taxes, such as estate freezes, and the use of multiple testamentary trusts.

Chapters 8 and 9 cover the basics of filing requirements and Canada Revenue Agency’s administration. The authors answer questions such as what needs to be filed, and when? They talk about practical estate and trust administration issues, such as how to close the estates for income tax purposes to get the clearance certificate required before the executor or administrator can make a final distribution.

Chapters 10 through 16 set out the nuts-and-bolts of filing in the tax returns for a trust. I found this had useful information for me. But I expect it will be of greatest assistance to accountants, who are involved in preparing the returns.

Practitioner’s Guide to Trusts, Estates and Trust Returns offers estate lawyers, accountants and financial planners an excellent overview of the important tax law points that affect an estate practice. This book is also is a handy reference.

I look forward to reading the 2007-2008 edition, which includes material on non-resident trusts, and is just coming out.

Waters' Law of Trusts in Canada

I have recently completed reading Waters, Gillen and Smith, Waters’ Law of Trusts in Canada Third Edition (Toronto: Thompson Carswell, 2005).

Professors Waters, Gillen and Smith provide a comprehensive treatment of Canadian trust law. This book is remarkable both for its breadth and depth. Although focused on Canadian law, the book cites the older English authorities, as well as other Commonwealth and American cases. They analyze trust law in its historical context, but they are forward looking, suggesting areas in need of reform.

This book is divided into thirty chapters. It covers how express trusts are created, and how they may arise by operation of law. There is an excellent chapter on charitable trusts. The book deals with such mundane, practical issues as appointing successor trustees, and trustees’ duties to account to beneficiaries. It also deals with fascinating, but more esoteric, issues such as whether The Hague Convention on the Law Applicable to Trusts and on their Recognition allows a resident of a jurisdictions that has implemented the convention to avoid domestic restrictions on trust law by choosing the laws of foreign jurisdictions even if the trust, assets and beneficiaries do not have any other connection to the foreign jurisdictions.

Waters’ Law of Trusts in Canada also has an interesting discussion on the evolution of trustee investment powers in Canada. The authors look at the historical relationship between the types of investments trustees were permitted to make, and the rules requiring trustees to keep an even hand between income and capital beneficiaries. Certain types of investments were once seen as both safe, and as providing a fair return to income beneficiaries, while preserving capital. With changes in the economy, and modern portfolio investment theory, trust law in most Canadian provinces has moved to a more flexible prudent investor standard. But, the types of investments a prudent investor might invest in to maximize the total return to the trust may change the balance between income and capital beneficiaries. The authors suggest investment decisions could be divorced from even hand considerations by creating “unitrusts” or “percentage trusts.” In other words, instead of income, some beneficiaries get a percentage of the trust funds each year.

How influential is Waters’ Law of Trusts in Canada? I searched “Waters” and “law of trusts” on the Canlii website, and got 435 cases. The Canlii website contains relatively recent cases only (it goes back to about 1990 for B.C. cases). The Supreme Court of Canada cited the 3rd edition in its decision in Buschau v. Rogers Communications Inc., 2006 SCC 28, [2006] 1 S.C.R. 973. I found about 15 Supreme Court of Canada cases in which the court cited the 2nd edition, which came out in 1984. I cannot think of any Supreme Court of Canada cases dealing with trust law since 1984 that have not cited either the 2nd or 3rd edition.

Waters’ Law of Trusts in Canada is my starting point for research into trust law issues.

John Poyser's Comment on Insolvent Estates

Where some see problems, creative lawyers like John Poyser, of the law firm Inkster, Christie, Hughes in Winnipeg, Manitoba, find solutions. Ten days ago, I wrote a post here about insolvent estates in British Columbia, in which I said that if the estate is insolvent, the estate assets will go to creditors, rather than to the beneficiaries of the deceased's will. In response, John wrote the following comment:

When a bankrupt estate presents, a partnership between the heirs and creditors can be brokered in some circumstances. In the right case, it is "win, win."

I am handling a bankrupt estate right now. We are cutting a deal with the creditors. A family member will apply for administration (there was no will), and will collect on the assets that are available. The family member would have been the intestate heir of the deceased. The deal is that she will keep 35 cents on the dollar. In other words, if she collects $20K, she keeps $7K and gives the remaining $13K to the creditors.

Everyone wins. She gets a little bit of an inheritance. The creditors get some money. She knows his affairs and is in a position to maximize the amount collected (she can sell the stuff in his apartment -- she lives down the way). The estate is modest and the creditors will not think it worth their while to apply for administration themselves. They would be stumbling in the dark if they tried.

This may not work as well when the dollar amounts are in the millions, but is worth pursuing in many cases.

This approach can also work in British Columbia in the right circumstances, and with cooperative creditors.

In addition to assisting clients in his busy law practice, John Poyser has co-written Practitioner's Guide to Trusts, Estates and Trust Returns 2005-2006 published by Carswell and available here, and is the incoming chair of the Canadian Bar Association National Wills and Estates Subsection. Most importantly, he also finds time to comment on my blog.

Doyle, Asset Protection

I do not think of myself as an asset protection lawyer. But, after reading Kelly R. Doyle, Asset Protection, LexisNexis Canada Inc., 2005, available here, I realize that as an estate planning lawyer, I deal with asset protection on several levels.

I have often suggested to clients who have concerns about the stability of their children’s marriages, or businesses, that they consider setting up trusts for their children instead of leaving outright gifts in their wills. I help plan for the possibility that my clients will lose their capacity to look after themselves. I also give advice to clients about minimizing their risks of successful lawsuits against them, or against their estates.

In his book, Kelly Doyle deals with professional responsibility issues, risk management analysis, and substantive areas of law including taxation, offshore trusts, family law, insolvency, and estate planning.

I find the ethical issues he raises most challenging. We are not allowed to transfer assets with the intent to “delay, hinder or defraud creditors.” There are civil and criminal consequences. Where is the line between legitimate estate planning and asset protection on the one hand, and fraud on the other? He does not offer a bright line test—and I doubt that there is one. He does say that lawyers have to ask the right questions.

For example, he says that in context of advising on the transfer of assets as part of an estate plan, the lawyer needs to ensure that:

…transfers are not being made with the intent to delay, hinder or defraud creditors. If the settlor [the person transferring the assets] does not volunteer the reason for the transfer, it should be requested. If the lawyer is dubious as to the reasons for the transfer which are offered by the settlor, the financial circumstances of the settlor at the time of the proposed disposition should be considered. If the settlor is insolvent or is in questionable financial circumstances, the provisions of provincial fraudulent conveyance and preference legislation, the Bankruptcy an Insolvency Act and the Criminal Code should be summarized for the settlor so that he or she is well aware of those provisions. If the lawyer believes that the disposition is being made to avoid creditors, he or she must refuse to act...

You do not need to be a lawyer to read this book, which I think should also be of interest to accountants, risk managers and financial planners.

Mr. Doyle is a lawyer in Vancouver, British Columbia. For more information about Kelly Doyle, and his firm Doyle Professional Law Corporation, their website is here.