How to Die and Really Mess Things Up. (And not just by dying)

Transcription

1 How to Die and Really Mess Things Up (And not just by dying) Linda Willcox Whetung, B.A., J.D. Whetung Law Presentation to the Women s Business Network Of Peterborough January 9, 2013 Whetung Law Barristers, Solicitors, Notaries 521 George St. N., P.O. Box 29 Peterborough, ON K9J 6Y5 T: (705) linda@whetunglaw.com whetunglaw.com Whetung Law NOT INTENDED TO BE LEGAL ADVICE 1 P a g e

2 Whether you are self-employed or an employee, everyone over 18 years of age who has any assets or children needs (at a minimum) the following: Power of Attorney for Personal Care Power of Attorney for Property Will What happens if you don t have: A Power of Attorney for Personal Care: This is a form of advanced directive which sets out your preferences or wishes about treatment decisions in the event you cannot express them yourself (due to mental or physical illness) If you don t have one the Health Care Consent Act can be used to make decisions about treatment, but cannot be used for other decisions such as what long term care home you should live in; some end of life decisions etc. The Office of the Public Guardian and Trustee will NOT take on this role so without one, your family will need a Guardianship Order from the Court. What happens if you don t have: A Continuing Power of Attorney for Property: A PPOA allows you to appoint one or more persons to make financial and property decisions when you are unable to do so or you direct them to execute documents on your behalf. Without it, the Office of the Public Guardian and Trustee takes jurisdiction over your affairs unless someone applies for a Guardianship Order or applies to replace the PGT. Whetung Law NOT INTENDED TO BE LEGAL ADVICE 2 P a g e

3 What happens if you don t have a Will: Between spouses you can arrange your affairs to minimize the need for a Will (joint accounts, designated beneficiaries on RRSP, TFSA, RRIF, Life Insurance). Real problems arise upon the death of you and your spouse or in cases where you do not have a spouse or you live common law. Without a Will, your estate passes under the Succession Law Reform Act. 1 st $200,000 to spouse, remainder in proportions depending on number of children alive. If no spouse equally to children alive. If spouse and no children all to spouse. If no spouse and no children to parents equally and if no parents to siblings equally and if a sibling has predeceased, their share goes equally to their children Does not deal with guardianship of your children. (Memorandum of Wishes) Does not apply to common law spouses. (They are left to litigate) No trusts for minor children. No legacies, specific bequests, tax planning. Whetung Law NOT INTENDED TO BE LEGAL ADVICE 3 P a g e

4 Even if you have a Will: Common mistakes are: Obsessing about EAT Not giving lawyer complete information Not thinking carefully about your choice of executor Failing to update your Will or Estate Plan Inappropriate Guardianship appointments (divorce, etc.) Risks of DIY Wills and Will Kits and Video Wills Not knowing marriage revokes a Will What happens to your business if you die? It depends on how you carry on business: If you are a sole proprietor, then upon your death: The Bank freezes all your bank accounts. You cannot draw on your business line of credit. Cheques written after the date of death will not clear the Bank. The Bank may call in your Demand Loan. Your Landlord may terminate your Lease. Your Creditors may revoke credit. Your personal assets could be at risk of seizure by creditors. Whetung Law NOT INTENDED TO BE LEGAL ADVICE 4 P a g e

5 Without proper planning, you leave your Estate Trustee (Executor) potentially with a huge mess (burdened with assuming management of your business and employees and he/she may not be in a position to do that). If you carry on business in partnership with someone else: This is better, but the partnership automatically dissolves on your death (unless you have a partnership agreement). Many of the same issues outlined above under sole proprietorship can still occur especially if you are the key man in the business and do not have a partnership agreement or life insurance. If your death results in a business loan being called, not only your personal assets, but those of your partners are at risk from seizure from secured and judgment creditors. If you are incorporated, then upon your death: This is much better but not always. At least the business continues to exist it is a separate legal entity. But - If you are the sole director and signing officer there may be no one to sign cheques or make deposits. If you have personally guaranteed the company s operating line the Bank could call the loan. There could be issues of control and possible conflicts between other shareholders and your Estate. Your interest in the business does not disappear on your death but passes to your beneficiaries either on intestacy (if you have no Will) or under your Will. Whetung Law NOT INTENDED TO BE LEGAL ADVICE 5 P a g e

6 In any of these instances, you leave a mess for your Estate Trustee (usually your spouse) if you are not organized and you could unwittingly force your business into bankruptcy. Incapacity can trigger the same issues. How to Protect You and Your Family 1. Consider whether you should have disability and life insurance to cover the costs triggered by your incapacity or death. Disability Insurance can replace your income if you cannot work and can provide revenue to keep the business going while you are ill. Life Insurance can keep your business solvent and your employees employed until your Estate Trustees decide what to do. Life insurance proceeds can be used to provide funding to your partners to buy out your Estate s interest in the business or to you to buy out your partner s interest. 2. Make sure you have valid Powers of Attorney: Continuing Power of Attorney for Property. Special Power of Attorney for Property (to deal with Business Assets). Special Power of Attorney with your Bank to permit others to make deposits or sign cheques (but your account may still be frozen at your death or incapacity if it is in your name alone). Whetung Law NOT INTENDED TO BE LEGAL ADVICE 6 P a g e

7 3. Partnership and Shareholders Agreements Partnership and Shareholders Agreements deal with (among other things): What happens if your partner (or a common shareholder) becomes ill, bankrupt or dies. If your partner dies: Who is in charge? You or their Estate Trustee? How do you buy out their interest and how is the value of that interest determined? Do you really want their spouse as your new partner? How do you prevent that? How do you resolve disputes with your former partner s Estate Trustee? If you die: Who runs the business and makes day to day decisions? How does your estate get your equity out of the business and how is it s value determined? Is your estate responsible for your share of business debt? How do you resolve disputes? 4. Have an up to date Will or Multiple Wills (and maybe even a Tertiary Will). Multiple and Tertiary Wills: When you die, with or without a Will, your Estate Trustee may have to obtain a Certificate of Appointment of Estate Trustee ( Probate ) to prove their authority to administer your estate. Whether or not Probate is required depends on the form, location and size of your estate assets. Whetung Law NOT INTENDED TO BE LEGAL ADVICE 7 P a g e

8 If you own a house, have bank accounts or investments over a certain amount (the amount depends on the Institution) you probably need Probate. Between spouses, we can often organize your affairs to avoid having to obtain Probate. If you need Probate, it involves making an application to Superior Court for approval of your Will. When this occurs, the court charges an Estate Administration Tax ( EAT ) on the value of the assets included under the Will (1.5% of the fair market value of those assets). To minimize this EAT, lawyers use Multiple and Tertiary Wills. We segregate your assets under two or more Wills by placing those assets for which we know you will need Probate (i.e. house, cottage, bank and investment accounts) from those for which we can avoid Probate (shares in a private company; some forms of debt; personal effects) We use Tertiary Wills to avoid tainting a Secondary Will s assets. Multiple and Tertiary Wills are usually only used with substantial estates ($500,000 +) 5. Develop a good succession/estate plan. The Estate Freeze This estate planning technique is used to freeze the value of your private corporation or investment portfolio to pass future growth on to your children or other beneficiaries. It allows a business owner to effectively predict the tax ultimately due on his/her death. Whetung Law NOT INTENDED TO BE LEGAL ADVICE 8 P a g e

9 Used on the advice of an accountant and usually done where owner of a business is close to retirement. Can be very expensive to implement, so they are usually used where you have a valuable company you wish to pass on to a child or children. Testamentary Trusts We establish trusts for your spouse and/or children under your Will(s). Best tax rate out there the same graduated rates as are applicable to individuals. Can afford protection to your spouse and/or children from spouses; creditors; undue influence and can protect a disabled child or spouse from losing government benefits. Intervivos Trusts Alter Ego or Joint Partner Charitable Remainder Trusts Henson Trusts Whetung Law NOT INTENDED TO BE LEGAL ADVICE 9 P a g e

10 Things you might not know: Just because you are married, doesn t mean you can sign for your spouse Marriage revokes a Will Support obligations survive death Former spouses, dependent children and adult children can make legal claims for support under the Succession Law Reform Act Regardless of whom holds title to your matrimonial home (which includes the family cottage), you cannot dispose of it without the consent of your spouse Divorce can revoke gifts to an ex-spouse, but separation may have no effect at all (even if you have a separation agreement) Common law spouses do not necessarily acquire property rights in each other s property the equalization of property provisions of the Family Law Act do not apply to common law spouses If left out of a Will, your common law spouse may have to resort to litigation to make a claim against your estate You can appoint one or more Attorneys for Property and Personal Care and they can serve jointly or joint and several You can appoint more than one Estate Trustee and the Guardian of your children does not have to be the same person who controls your estate assets (the Estate Trustee) Whetung Law NOT INTENDED TO BE LEGAL ADVICE 10 P a g e

11 QUESTIONS FROM THE FLOOR: 1. If I know I am to be appointed as an Estate Trustee, what should I do to prepare? The first thing you should do is talk to the person who is appointing you and become familiar with their affairs, for example:- (a) Where are their bank accounts and investments and in whose name(s) are they registered? (b) Do they have life insurance? Disability insurance? If so, who are the named beneficiaries and where is the paperwork? (c) Where is the Deed for the house/cottage/hunt camp? Who is/are the registered owners? Is there a mortgage on any of these properties and if so, to what institution and is it life insured? (d) Do they have a safety deposit box? Where is it? Who is the registered owner and where are the keys? What is in the box and why? (e) If they have a business, you should talk to them about what their intentions are and what plans they have made for business succession. (f) Ask to see a copy of the Will and their Powers of Attorney to become familiar with them so that you know their wishes in advance. 2. Where do I start when acting as Estate Trustee? This is where professionals can help. When someone dies, if you are the Estate Trustee it is your responsibility to arrange for burial and secure the assets of the estate (i.e. lock the house; get the interact and visa cards, etc). Funeral homes are great about guiding you and providing you with information. After the funeral, your first trip should be to see an estate lawyer to review the Will or to discuss what to do if there is no Will. The lawyer will explain what is in the Will and your responsibilities as Estate Trustee. We provide you with lots of practical, straightforward help on what to do and how to do it. The lawyer will ask you to provide a complete list of all the assets of the estate (house, cottage, bank accounts, investments, etc.) together with their approximate fair market value. The lawyer will also want to know all of the debts of the deceased. In terms of knowing what to do with the assets (should I sell the house? Cash in the investments?), what the Will says must be Whetung Law NOT INTENDED TO BE LEGAL ADVICE 11 P a g e

12 followed first and after that, most Wills give the Estate Trustee the discretion to sell or retain assets. You have certain obligations in law under the Trustee Act to be careful and conservative. Your lawyer, accountant and real estate professionals can guide you on what is the best course and how best to deal with the assets. 3. Who and How many Powers of Attorney or Estate Trustees should I appoint? Generally, if you have a spouse or partner, you usually appoint them first and then appoint one or more of your children (if they are over 18 years) as alternates. To give your children flexibility, we usually make their appointment joint and several, as opposed to joint. Joint and several means that either one of them can act or sign documents alone (as long as they consult the other) and joint means both must always sign documents together. What is best for you is determined in consultation with your lawyer. You can appoint your children at whatever age you want most families appoint their children upon them attaining 21 years or more. You can serve as a Power of Attorney for Personal Care when you are only 16 years old, but few families give a child that young that much responsibility. If you have no children or your children are young, you need to think carefully of who will make personal care decisions for you and property decisions if you are incapable. This is where many couples differ in their instructions. For example, you may want your husband to make medical decisions for you in the first instance, but if he has predeceased you or otherwise cannot make those decisions, you may want someone in your family to make decisions for you and he may want someone on his side of the family to make his decisions. That is perfectly ok. You need to make sure you do not make inappropriate appointments. You do not appoint the bankrupt, gambling brother-in-law as your Attorney for Property or Estate Trustee. You do not appoint your sister and your spouse s brother to act together when you already know they cannot agree on anything. This is where a good lawyer can make sure that you are making the best choice in your circumstances. We talk with you about family relationships and your reasoning and ensure that you are fully informed before making these very important decisions. You also do not want to appoint too many people to act. One or two is sufficient and you can add additional children as alternates if you want them to feel included. You are welcome to me anytime if you have any other questions at linda@whetunglaw.com Whetung Law NOT INTENDED TO BE LEGAL ADVICE 12 P a g e

13 Remember.. The Best Advice? Plan Early, Plan Smart Whetung Law NOT INTENDED TO BE LEGAL ADVICE 13 P a g e