Estate Planning and the Black Sheep Child

In November, Adam Mayers of The Toronto Star reviewed my book, Let’s Get Blunt About Your Financial Affairs. In his article, he discussed some of the comments I made in my book on inheritances.

123 REF-Tomas Marek

My observations elicited some very interesting emails to my inbox. Some of the emails provided tragic and sad details of children being left out of their parents' lives and consequently their wills for various reasons. One reader, who is gay, asked me if he could be left out of a will solely for that reason.

This question is far outside my area of expertise. I thus enlisted my wills, trusts and estates expert Katy Basi, to answer his question and discuss in general, the consequences from both the parents and child's perspective, of leaving a black sheep child out of the will.

Please note: Katy and I use the term "black sheep" colloquially and the term is not meant to be demeaning in any manner.

Estate Planning and the Black Sheep Child

By Katy Basi

Many families have one (or more) black sheep children, and estates lawyers commonly deal with two categories of questions regarding these shunned family members. In this blog post I will refer to our sample unfortunate as Cain (though most black sheep are not guilty of fratricide!). The two situations are as follows:

1. If the client is not Cain - can I cut Cain out of my will? If I do, will he be able to challenge my will? 
2. If the client is Cain – can my family members cut me out of their wills?

The Parent is the Client

If you plan to cut Cain out of your estate plan, I typically have three pieces of advice for my clients:

(1) Explain in the will why Cain is being treated differently than other family members of the same degree of family connection. For example, if a child is being cut out of a will because they have chosen not to have contact with their parents for two decades, the will should state that very relevant fact. Otherwise, Cain could argue that the lawyer made a drafting error by leaving him out, or this omission could be used as evidence of the parents’ lack of capacity to make the will(s) in question (i.e. the argument then goes “Clearly the fact that they “forgot about me” indicates that they had lost their marbles!”).

(2) Consider leaving a set dollar value legacy to Cain, and then having a clause that takes the legacy away if Cain challenges the will for a reason other than a valid interpretation issue. This is known as an “in terrorem” clause and needs to be very carefully drafted by an estates lawyer in order to be legally effective.

(3) Arrange for a capacity assessor to interview the testator before the will is signed (though not too far in advance of signing). The capacity assessor should then write a letter or report of some kind confirming that the testator has the capacity to make the will in question (presuming that this is the case, of course). This is particularly helpful if the testator is elderly or ill, or if there are any other factors which could lend strength to a “lack of capacity” argument by a disappointed beneficiary. I have seen a capacity assessment stop estate litigation in its tracks.

Cain is the Client

When I am advising Cain, my first piece of advice is to consult an estates litigator (I am an estates solicitor, and therefore a major part of my job, in my view, is to help clients plan their estates in such a way as to discourage litigation). After that disclaimer, my counsel generally flows along these lines:

(a) We are lucky (in my view) to have testamentary freedom in Ontario, subject to certain limitations (other provinces such as British Columbia have enacted laws limiting testamentary freedom to some extent).

(b) One exception to testamentary freedom is the ability of certain family members (e.g. minor and adult children, parents and siblings) to make a support claim against the estate. For example, if Cain is an adult child who was financially supported by his parents, and was not left a sufficient inheritance by them (as determined by a court) Cain may make a support claim against the estate. Support can include providing accommodation at lower than fair market value rent.

(c) Where no financial support has been provided, Cain’s usual recourse is to try to have the will that cuts him/her out declared invalid, usually on the basis of a lack of testamentary capacity (as alluded to above) or undue influence (e.g. “my sister pressured my mom into cutting me out of her will”).

(d) Either of these claims will require solid evidence to be successful in court.

(e) A successful will challenge is not helpful if the prior will also cuts out the challenger, presuming that the prior will is valid.

(f) While in the old days most of the costs associated with estate litigation were borne by the estate in question, the courts have shifted their approach in recent years. These days, courts do not hesitate to order an unsuccessful will challenger to pay, not only their own costs, but also the costs of the estate relating to the challenge. Litigation is very, very expensive and time-consuming, so launching a will challenge due to feeling left out, without a good evidentiary case, is just not a good idea.

(g) However, if the will challenger has been cut out of the will for a reason that is against public policy, then litigation may be successful even if the testator had capacity and was not unduly influenced. If Cain can prove in court that he/she was cut out of an estate plan due to discrimination on a basis not permitted under the Charter of Rights and Freedoms, for example due to their sexuality, or because they married outside of his/her race/religion etc., then Cain may have a valid claim. The evidentiary mountain here can be steep to climb, but in a recent case the claimant was successful in overturning her father’s will on the basis that her father had cut her out as she had a mixed-race child. She was successful despite the fact that there was no reference to this discrimination under the terms of the will. There was, however, substantial external evidence as to the discriminatory reason behind her father’s estate plan.[Note: Just prior to the publication of this blog post, the decision of the lower court was overturned by the Ontario Court of Appeal, reinstating the father's original estate plan. It would be very helpful to have guidance from the Supreme Court of Canada regarding this issue if the daughter decides to ask for leave to appeal].

My discussions with clients about cutting out, or being, the black sheep tend to be fraught with sadness, anger and frustration. My experience is that clients do not cut out a black sheep lightly, and in many cases would usually be overjoyed to reconcile, knowing that there will need to be apologies and compromise on both sides. By the time I am counselling a black sheep about being cut out, it’s clear that no amount of litigation will heal the hurt feelings.

Bloggers Note: Katy has written numerous guest posts for this blog. Many of her articles have proven to be very popular with readers. If you want to read more from Katy, the best way to review her previous blog posts is: go to the search function on the top right hand side of the blog and type in her name.

Katy Basi is a barrister and solicitor with her own practice, focusing on wills, trusts, estates, and income tax law (including incorporation's and corporate restructurings). Katy practiced income tax law for many years with a large Toronto law firm, and therefore considers the income tax and probate tax implications of her clients' decisions. Please feel free to contact her directly at (905) 237-9299, or by email at katy@basilaw.com. More articles by Katy can be found at her website, basilaw.com.

The above blog post is for general information purposes only and does not constitute legal or other professional advice or an opinion of any kind. Readers are advised to seek specific legal advice regarding any specific legal issues.

This site provides general information on various tax issues and other matters. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situation. Please note the blog post is time sensitive and subject to changes in legislation or law.

One Big Happy Family - Until We Discuss the Will

This summer I am posting the "best of" The Blunt Bean Counter while I work on my golf game. Today, I am re-posting my 17th blog which I wrote way back in December 2010. This post tackles the taboo subject of whether you should discuss your will with your family. While this is my fifth most read post of all-time, it only had 6 comments which I find puzzling. Maybe our aversion to discussing our will goes as far as commenting on articles about the topic?

I almost forgot that when I started this blog, I used to post a non-financial post with ever tax or financial post, as evidenced by my Dentist's Wallpaper discussion that follows the main post.

One Big Happy Family - Until We Discuss the Will

What I want to discuss in today’s blog is the issue of whether parents should discuss their will with their children.

When there is a “black sheep” child in the family, or a child who is not treated equally in the will, I expect that a family meeting would likely be a disaster. But what about a meeting in situations when the children are treated somewhat equally? There is no right or wrong answer, but I think a family meeting is wise. Any meeting of this type can turn ugly because of money issues, but more likely, any ugliness will be the result of historical family jealousies or resentment over some prior issue or treatment. Nevertheless, if you feel you can navigate the minefields noted above, the family meeting can be very effective and useful.

The family meeting could be used to deal or clarify several different types of issues. For example:

1. Possible perceived inequalities: The meeting could be used to explain why you have left your Picasso to your daughter instead of your son so that he doesn’t feel slighted when the will is read. This discussion could involve explaining that since your daughter studied Art History at university, you feel she would appreciate the Picasso; however, since it is worth $500,000, you have left your son $500,000 of stock to equalize (or if you have not tried to equalize, you can explain why face to face). Also, where you have left more money to one child (perhaps they make less money than the other children), you can use the meeting to clarify why and explain that it has nothing to do with loving that child more, you are just helping them since they have not been as fortunate as the other siblings.

2. Determine wants and needs of the beneficiaries: Many families have second properties such as cottages or ski chalets. Some children may have attachments to these properties while others might not, or maybe you are not sure whether any child would want to take over the property when you pass. A meeting provides the opportunity to raise the issue for your children to decide among themselves if they will want to sell the property, share the use, or have one child inherit the property. This issue may be best discussed prior to a will being finalized.

3.  Deciding on an executor: Most children have no idea of the responsibilities and the burden of being named an executor of the will. You can broach this topic at the meeting to explain the duties of the executor and determine if the children or child you wish to be an executor(s) are/is willing to undertake the position.

4.  Full disclosure: Finally, depending upon how open you wish the meeting to be, you can provide a current list of assets to your children so they know what assets you own and where they are held. In any event, you should also provide such a list to your accountant, lawyer or spouse. A copy of the list should also go into your safety deposit box. They key take-away is that you must ensure such a document exists and someone knows where it is.

The decision to have a family meeting to explain your estate planning while alive and in good mental and physical health is a complex decision based on past family history and relationships. However, if you feel the meeting can be held without creating a “civil war,” it gives you a great chance to explain your estate planning and to get everyone onside.

Update: I followed this blog post up with another in February 2012, which reviews an Investors Group survey of Canadians attitudes towards discussing their wills. If you have any interest, here is the link.

The Dentist’s Wallpaper

There is not much to do while you are in the dentist’s chair, especially if you are not lucky enough to have nitrous oxide administered. Personally, I look for anything to take my mind off that damn drill.

One day while having a cavity filled I started reading my dentist’s wallpaper. Before you say “I think you really did have nitrous oxide administered and maybe too much,” you must understand my dentist’s wallpaper actually has “life quotes” all over it. One of the quotes was “Life is Hard by the Yard, But by the Inch Life’s a Cinch.”

I don’t want to get all philosophical here, but I just found the quote so interesting; it actually took my mind of the drill. Such a simple adage that says so much.

We all can get overwhelmed when we look at all the tasks and requirements of our daily lives, but if you break those tasks down into bite-sized pieces, the totality of all the tasks is less overwhelming. Although this is easier said than done, I do try and remember this quote when I feel overwhelmed.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.