"I've only acted as an executor once and it was difficult and stressful. I did it as a favor for a client and I would personally think twice about doing it again. It's something that you need skill and perseverance and fortitude to get through."
- Daniel Dochylo, Partner at BLG.
Transcript
Intro Speaker:Hello, and welcome to Matters Beyond Wealth with your host, Leanne Kaufman, president and CEO of RBC Royal Trust. For most of us, talking about subjects like aging, late life, and estate planning isn't easy. That's why we're going to help get the conversation started on this podcast while benefiting from the insights and expertise of some of the country's top experts. We want to bring you information today that will help to protect you and your family in the future. Now, here's your host, Leanne.
Leanne Kaufman:What do artists like Jimi Hendrix, John Lennon, Aretha Franklin, Jim Morrison, and Prince all have in common, other than creating some of the best music our world has ever seen? All of these successful celebrities ended up with their loved ones fighting in court over their estates after they passed away. More often than not, the cause of litigation is the “haves” versus the “have nots.” Meaning those that were left out of the estate had something very public to say about it, but that isn't always the reason for litigation in estate matters.
Hello, I'm Leanne Kaufman and welcome to RBC Wealth Management Canada's Matters Beyond Wealth. I have two guests joining me today, and both are experts in Canada when it comes to contentious estates, representing two different parts of the country. From Calgary, I'm joined by Nancy Golding. Nancy is a Director of Trust & Estate Law, and a barrister and solicitor for Moodys Private Client Law.
Nancy helps people plan for their future or navigate through estate litigation. She began her career in social work, where she helped people cope with challenges at every stage in their lives, and I'm sure that comes in very handy in her current role. Nancy soon brought these valuable skills to the field of estate and trust law. With nearly four decades of experience, Nancy has established herself as a leader in her field, representing individual and corporate clients in a wide variety of issues pertaining to estates and trusts.
Nancy is proud of her more than 20 years of involvement with the Society of Trust and Estate Practitioners and was elected as worldwide Chair in January 2021. She also holds an associate membership with the Chartered Institute of Arbitrators, and is one of the few Canadian legal professionals with a fellowship to the American College of Trust and Estate Council.
And from Toronto, we're joined by Daniel Dochylo, a partner at BLG. Danny is a member of BLG's Private Client Group and National Chair of the Estate Trust and Family Litigation Focus Group. His practice focuses on estates and trust litigation including Will challenges and interpretations, passing of accounts, removals of trustees, dependence relief and guardianships, and other matters involving trusts, power of attorney and estates.
He also represents clients in contentious multi-jurisdictional administration and financial institutions in disputes involving aging investors. Danny acts as a mediator of estates and trusts and has expertise in insurance defense, commercial litigation and family law. He's a certified specialist in estate and trust law by the Law Society of Ontario and is also a designated associate of the Chartered Institute of Arbitrators.
Danny and Nancy, thank you so much for being here today with me to discuss what can go wrong when settling an estate and why this also matters beyond wealth.
Daniel Dochylo:Thank you, Leanne. It's a pleasure to be here.
Nancy Golding:Thank you, Leanne, for the opportunity to participate.
Leanne Kaufman:Now, we at RBC Royal Trust did some survey work earlier this year and we learned that people think that being an executor is an easy job. Given the work that you do, Nancy, how would you respond to that?
Nancy Golding:I have to say, first of all, it's by no means an easy job, and personally, I think it's a burden rather than an honour. There are legislated tasks and obligations in the common law fiduciary obligations. There's tasks and steps that need to be taken and those are set out in Alberta in the Estate Administration Act, and I presume there's something similar in Ontario. There's obligations to provide notices and information to specified people. You have to account for the assets in the estate and the work that you've done. And all of this is set out in this legislation and you have to do all of this even if you don't go get a formal grant and you don't need something that formal to administer an estate.
There's potential obligations to consider and you have to deal with minors, unborn, maybe people who are missing as beneficiaries, people who are in common law or in Alberta, we call them adult interdependent partners—in AIP relationships—or people who might be considered to be dependents. As Danny and I well know, there might be litigation in an estate. So there's all kinds of people who will make claims against an estate in a variety of limitation periods and timelines that go with those that an executor or a personal representative has to pay attention to.
There's also liability for acting as a personal representative. There's a liability to the beneficiaries, to potential beneficiaries and claimants, personal liability to personal representatives if they distribute assets in the face of a claim that they knew, and the catch here part is “knew” or “ought to have known about”—so even if it's something they should have known about. And then there's liability to outside agencies like the Canada Revenue Agency, the IRS, and other taxing authorities.
And estates, as people know, can often go on for years. It's by no means an easy job and it's certainly not something I think it would be a quick job at all.
Daniel Dochylo:I think that's a really comprehensive answer. On a personal note, I would say I've only acted as an executor once and it was difficult and stressful. I did it as a favour for a client, a hospital foundation, and I would personally think twice about doing it again. It's something that you really need skill and perseverance and fortitude to get through.
Leanne Kaufman:And sometimes a good litigator.
Daniel Dochylo:Always a good litigator. You should always have a good litigator, yeah.
Leanne Kaufman:That's a great segue to you, Danny. Maybe you could continue on and tell us what are some of the most common reasons that you do see for families or estates in general taking their battles to the courtroom?
Daniel Dochylo:Well, I made a short list of eight or nine common causes. The first is unequal division, the feeling by a beneficiary, often an adult child that they got less than they were entitled to. Ironically, another common cause is equal division where one beneficiary adult child feels that they should for some reason have gotten more. Another common cause is historic grudges between members of the beneficiary group or jealousy; who has done better in life? Mom or dad loved me more or loved you more, and there's upset over that.
Also, misunderstanding of the law. The notion that a testator in planning his or her estate must make an equal division. That's not correct. Many do, but in Canada we have testamentary autonomy and testators can make divisions and allocations and gifts that they want.
Another common cause, one which we've seen quite a bit in Toronto, relates to how a valued asset is dealt with in a Will such as a cottage or an artwork or a vintage car. Another cause is where one child or beneficiary has provided more care or support for a testator (i.e., a parent) and feels as a result entitled to receive more. The sort of converse or inverse is where one child has gotten more during their lifetime, more money, more benefits, perhaps they still live at home even though they're older and there may be a need and/or an entitlement and some jealousy on the part of other beneficiaries or siblings.
There's the concept of, or the difficulty that there's only so much to go round. Most testators have a relatively limited asset pool. If they have a second marriage or third marriage, they have to provide for their spouse and perhaps a former spouse and adult children, and that creates division and allocation problems. It's hard to provide for everyone at the same time.
And lastly, I think is probably the cause that leads to the most acrimony and the most bitter litigation is where there is what I refer to as self-help. Where a spouse or adult child involves themselves in the planning, the Will making of a testator to a great extent, perhaps even takes them to a lawyer and has them change their Will at a late date, probably too late.
Leanne Kaufman:Right.
Daniel Dochylo:And this almost inevitably leads to a challenge.
Leanne Kaufman:Nancy, we talked about your background in social work. Listening to a number of the causes Danny's brought forward as to why people go to court, I think that's where your background in social work must make you an excellent estate litigator, but do you have anything to add to what Danny's already set out there?
Nancy Golding:Well, so one of the things that I wanted to add was I have to say often the fighting has nothing to do with the issues at hand or the estate, but it's part of a long family history and often this is the last time where people think that they can right past wrongs. So having the social work background helps with that kind of thing.
Leanne Kaufman:And Nancy, in your experience, how often do you think that some better planning upfront on the estate and financial planning side and some advice in that regard might have helped to avoid the conflict after death?
Nancy Golding:Yeah, I think that's really important, and one of the big reasons for it is a lot of people don't really know what they should be doing in terms of planning and they don't know the things that they need to think about. Just as an example, often people think that anything that they have in a corporation belongs to them. They try to give away assets that are in a corporation and someone giving them planning advice can assist with that.
They also don't often know who they have to leave things to or who they might have obligations to. I see relatively often where people are estranged from family members and so often where it's parents are estranged from a child and they think they don't have to include the child, and speaking with someone could save having that child show up later and argue and try and make a claim against the estate. Also, beneficiaries in other jurisdictions, taxes, that kind of thing. People can really get themselves into trouble, I think, if they don't get advice.
One of the things that we try to do is to get people to think of things in a more holistic way. Also, if they are doing something that isn't what people might call plain vanilla, I think it's important for them to explain what it is that they're doing. To put an explanation in a Will, maybe do a separate document that lists assets and provides an explanation as to why somebody's getting less, or why they've given somebody the company, or why somebody got the farm and nobody else got the farm.
I think that kind of a document is handy and I think that it's handy to have some expert planning advice to come up with something like that.
Daniel Dochylo:I think that's all true, and I don't want to be fatalistic, but some problems are just very hard to avoid because of who the people are and what the assets are and what a testator wants to do. If they want to make a particular division and someone is going to be left out that's a high risk of it leading to conflict and litigation.
While I would hope that really thoughtful, vigorous, transparent planning can avoid litigation, sometimes it's just not possible.
Leanne Kaufman:Right, yeah. So, let's switch gears from the family dynamics and talk about a little bit of executor liability. Danny, I want to start with you on this one because you spoke of having already acted as executor and we heard from Nancy all of the duties involved, but from your perspective, how important is it to choose the right executor?
Daniel Dochylo:Well, it's very important. I think the client (the testator) is well advised to pick someone that they trust and also someone that's capable and skilled. There's often an inclination to pick the closest family member, a spouse or adult child or a close friend, but that person's not necessarily the most suitable or capable person to do the job. And while professional advice can assist, it is the executor that is going to make the decisions that need to be made.
And professional advice is not a complete counter to bad judgment or a lack of time, or any of the other sort pitfalls that can plague an executor. I think that testators should sometimes consider appointing a professional, either an accountant, or a lawyer possibly, or better, consider appointing a trust company. The reason for that is that while most family members who act as an executor, it'll be their first time and the learning curve is very steep.
For a trust company that's in the business of providing fiduciary services, that's their business. They will have done it hundreds and thousands of times and they'll have just a repository of knowledge and skill which they can bring to bear. And if there's litigation, it's a real benefit I think to have a neutral institutional executor, it tends to level the playing field. It tends to provide for, I think, better outcomes than otherwise.
Leanne Kaufman:Nancy, what do you wish more people understood about executor liability?
Nancy Golding:I wish they understood that there is liability in the first place, and the amount of liability that there is. I mentioned some of it before, there being liability for people who are making claims against the estate for distributing. Again, if you distribute an estate in the face of a death that you knew or ought to have known about, then you are personally liable.
It's interesting, one of the other things that I think that's come up in case law in the last while is that, for example, in Alberta an executor has to receive permission either of the beneficiaries or of the court to either take a court action or to even defend a court action. People do that, they'll get the permission, and then they think they're good to go and they have carte blanche and they don't.
And that's kind of one of the other things that's been coming up lately here in Alberta, is where personal representatives or executors are defending an estate or they are going after somebody who's making a claim against the estate, and they spend a whole lot of money on legal bills. And lo and behold, at the end, the court says you have to pay some of these legal bills personally. And I think people don't realize things like that. Often somebody will put into a Will that, "I want my Will to be upheld and I want my personal representative to defend what I want to do." And I think people don't realize that just having that in the Will isn't going to be good enough.
One of the other things I wanted to comment on though is you can put clauses in a Will that might be of some assistance to say that a personal representative can get indemnified out of the estate. The other comment I would make is there is insurance that is out there for executors. In some circumstances, that might be something that people want to look at to try as a shield against liability that there might be.
Leanne Kaufman:Well, I know no one listening wants to think about their family breaking down over anything tied to their estate, because let's be honest, it's really going to come down to fighting over money or fighting over other assets like a cottage or art. So maybe starting with you, Danny and then Nancy, add what you'd like to. What sort of one piece of advice would you give to people planning their estate to date to help try to preserve their family harmony after they're gone?
Daniel Dochylo:Well, I think communication is important and some degree of transparency. Often it's difficult for testators to talk to their family about what they're going to do in their Will. They don't want to do it and it can be painful, but I think being proactive and explaining what allocations have been made and why can head off a dispute in the future.
I think it's also important to plan early and to try to be consistent. It's not that a testator can't change his or her Will, but persons who for one reason or another leave it too late to make a Will or make radical changes late in life, this tends to lead to problems and litigation. If there's a hot button issue that a client—the testator—knows is likely to cause a problem, they should try to deal with it during their lifetime. I refer to it as sort of clean up your own mess, look after your own house.
If there is a beneficiary or an adult child that needs more for good reason, considered providing for them during the testator's lifetime (i.e., by an inter vivos trust). If there's a child who got more for whatever reason, consider dealing with that in some way during the testator's lifetime or providing specific statements in the Will about that and about the adjustments that are being made and why.
I think it's important for testators to communicate with their executors. It always surprises me when I see a testator's died and appointed a particular executor and the executor has no idea that they're appointed—sometimes pleased, sometimes horrified, not knowing what to do. They don't want to refuse the appointment generally because it can be a close friend or colleague or something, but no discussion in advance. That's not good. Really, I think a testator should meet with their executor before death, keep a list of assets and liabilities updated, provide to their executor a list of contacts. If there are anticipated problems, talk to their executor about how they would like the problem to be dealt with. Express a wish, give the executor some guidance so that he or she is just not completely adrift.
Leanne Kaufman:Yeah. I'm hearing a common theme here in both communication and then documenting the communication. Nancy, what about you?
Nancy Golding:Yeah. I would echo everything that Danny has said. I really agree on the communication part and on the transparency part. Lots of testators won't do that because they don't want to face their family, but honestly, to leave it up to the family to fight later. I often hear testators say, "Well, that's okay. They can fight. I don't care. I'm going to be gone." And really, that's just not an appropriate way to think about things.
The other comment I do agree with that Danny said, is this idea of maybe coming up with ideas or things that you can do early. So maybe you list a person as a beneficiary on an insurance policy instead of listing them in the Will if they're a hot button person to the family, or as Danny said, put assets into a trust for someone if it's appropriate to do something like that. Or put more than one cottage on your cottage land so that all your children can have their own cottage might actually help. Anyway, I do think the transparency and the communication is key.
Leanne Kaufman:Yeah, and I think those are common themes, even when we're not talking about trying to avoid litigation, but certainly, it may go a long way in circumventing some of those disputes after death.
Well, thank you so much, Nancy and Danny for joining us today to talk about how settling an estate can go wrong and what we can do to help try to prevent that from happening and why all of this matters beyond wealth.
Daniel Dochylo:Well, I've really enjoyed this. This was actually my first podcast. Can you tell?
Leanne Kaufman:No, you were great. Thank you.
Nancy Golding:Anyway, thanks. Thank you, Leanne. It's been a pleasure and it's a lot of fun doing this with you guys.
Leanne Kaufman:You can find out more about Nancy on LinkedIn and at moodysprivateclient.com
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