BASIC TERMINOLOGY
Administrator / Person who administers an estate on an intestacy.
Bequest / gift of personal property
Devise / gift of real property
Estate / The degree, quantity, nature and extent of a person’s interest in real or personal property.
Key issue in estate planning and administration: is this asset part of a client’s or deceased’s estate?
Estate Planning / The creation of a wealth management roadmap which efficiently meets “wealth redistribution objectives” and how to achieve them in the most efficient means possible either before or after death (contrast w/ “financial planning”)
Essential if estate involves significant assets or complex issues.
Helps a client:
  • Meet wealth redistribution objectives
  • Reduce taxes and expenses to estate
  • Simplify and expedite the transfer of assets to heirs
  • Ensure their beneficiaries are protected
  • Reduce the risk of estate litigation.

Executor / The “office” of a man/woman appointed to carry out the intentions of the testator and administer his “estate”. More than one executor can be appointed under a will (e.g. co-executors and/or alternative executors).
Executor’s power emanates from a will and takes effect immediately upon death
Executor’s mandate commences immediately following death, unless he renounces
Executor must file probate application for “letters probate” to document that he has the authority to deal with the assets of the deceased (but note: duties of executor do not await probate).
First responsibility of executor is to identify, protect, and insure the deceased’s assets from date of death, for 2 main reasons:
(1) estate is a trust, and as executor you are a trustee, and thus owe a fiduciary duty to intended beneficiaries to secure, protect and insure the assets in deceased’s estate, and
(2) you have to attach as an exhibit to the affidavit in a probate application a “Statement of Assets, Liabilities and Distribution” that lists certain assets identified under the Probate Fee Act(see below).
Financial Planning / The creation of a financial roadmap which shows where a person is financially, where they want to go financially, and how to get there (contrast w/ “estate planning’)
Essentially concerned with efficient wealth creation, management and preservation, and lifestyle maintenance
Helps a client to:
  • Minimize taxes and maximize investment returns
  • Ensure more secure retirement years
  • Assist with handling day-to-day finances
  • Increase savings and optimize wealth
  • Improve cash flow and balance income and expenses
  • Accumulate assets for personal goals
  • Cover dependents in case of death or disability
  • Determine insurance requirements (life, disability, property, etc.)

Holograph Will / A will written entirely by the testator or grantor with their own hand - signed but not witnessed.
Not recognized in BC (exception: s. 5 of Wills Act allows holograph wills for mariners). Most Cdn jurisdictions (except BC, NS, PEI) recognize them.
Intestacy / If a person dies without a will or with a void will. Estate Administration Act applies
Joint Ownership / When two or more persons share legal and beneficial title in an asset (real or personal, tangible or intangible). When a joint tenant dies, his share of the title goes directly to the other joint tenant(s) (b/c of the right of survivorship), and not his estate.
2 main advantages of JT: (1) avoid probate fees (b/c asset never passes to personal rep - assuming beneficial title is jointly owned), (2) avoid Wills Variation Act, (3) capital gains taxes, (4) creditors’ claims
Lapses / Where the disposition of one or more assets in a will fails. Occurs in several circumstances:
  • Failure to name an executor in the will
  • Executor named in will predeceased testator or “renounces” the office of the executor, and no alternative executor is names
  • Named beneficiaries have predeceased the testator with no alternate beneficiaries named
  • Exception: s. 29 of Wills Actprovides that dispositions to children and siblings of testator that predecease testator, but who have children at time of testator, do not lapse but take effect as if original disposition was to them
  • Will fails to distribute all of the testator’s assets and no residue clause
  • Testamentary trusts settled by the will fail to provide for the distribution of remaining assets once the trust ends (see p. 14)
Lapses may lead to a partial intestacy if there is no residual clause in the will (see s. 21 of Wills Act), or if lapse occurs in the residual gift itself, the residue will pass on intestacy (see Jones v. Public Trustee)
Legacy / gift of cash or cash equivalent
Partial Intestacy / Deceased has a validly drafted and executed will, but there has been a lapse
  • See “lapses”
  • e.g. testator has not disposed of all of his assets, or one of his intended beneficiaries has pre-deceased him leaving those assets remaining
Can be avoided with a broad residual clause, but note Jones v. Public Trustee. Property passing on partial intestacy administered by Estate Administration Act.
Power of Appointment / a power or authority conferred by one person by deed or will upon another (called the “donee”) to appoint, that is, to select and nominate, the person or persons who are to receive and enjoy an estate or an income therefrom or from a fund, after the testator’s death, or the donee’s death or after the termination of an existing right or interest. A power to appoint may be exercisable by deed or by will depending upon the terms established by the donor of the power, and is defined, generally, as power or authority given to a person to dispose of property, or interest therein, which is vested in the person other than the donee of the power.
E.g. “I GIVE, DEVISE AND BEQUEATH unto my Trustees all my estate, both real and personal of whatsoever nature and kind and whatsoever situate, and also any estate over which I may have any power of appointment or disposal at my death. . .”
Probate / Probate confirms the validity of a will. Not all wills must be submitted for probate.
Wills will need to be submitted for probate where
  • there are competing wills,
  • there is a challenge to validity of a will, specifically whether it expresses testator’s intent (i.e. undue influence)
  • executor needs poof of authority where institutions holding assets or involved in their transfer to beneficiaries insist on probate
Many transfers can occur without probate
  • e.g. small bank balances, personal ornaments, paintings, bicycles, clothing, cash, coins, gold bars, furniture, electronics, books, collections, wine, etc.

Succession / The devolution of title to property under the law of descent and distribution.
Note: although “succession” is often define in statute as the acquisition of title to property of one who dies without disposing of it by will, the word frequently has the broader meaning of the acquisition of rights upon the death of another.
Testator / Person making the will
Trustee / The individual or corporation that is appointed by the will to hold the estate assets in trust during the executor’s administration period and, perhaps, during the duration of any testamentary trusts settled by the will.
Executor and trustee usually same person, but they can be separate entities. Separate trustees can also be appointed by the estate and testamentary trusts
Will / A written document prepared by a person during his/her lifetime, to take effect upon death, directing how his/her assets are to be distributed following death.
Note: will can also be used as a designation of a beneficiary under an insurance policy - if will found invalid, the designation of a beneficiary under insurance policy may still be valid (s. 50(1), s. 102(2), Insurance Act)
SUCCESSION PLANNING FOR SOLE PRACTITIONERS OR PROFESSIONALS

For Lawyers

  • B.C. Professional Conduct Handbook (Chp. 3, para. 3) states that a lawyer’s professional obligation to serve clients in a “conscientious, diligent and efficient manner”.
  • Arguably, this includes an obligation to take steps to protect clients’ interests in all circumstances, including death, serious illness, disability or incapacity.
  • E.g. see Law Society of BC - Practice Support “Succession Planning” and LSUC “Guide to Closing Your Practice - Plan ahead to protect yourself and your clients”
  • Matters to consider:
  • Who will attend to adjourn the court application in the morning?
  • What will happen to any unfinished work due tomorrow or next week?
  • Who will call clients booked to see you and see them throughout the next few weeks?
  • Who will contact clients about their unfinished files?
  • Who will complete the wills and conduct of ongoing files?
  • Who will manage trust accounts with clients’ funds on deposit?
  • Who will deal with staff?
  • Who will release with wills from the will vault?
  • Who will attend to the accounts payable that are coming due?
  • Who will issue accounts and follow-up on accounts receivable?
  • Etc.
  • Your lawyer/client should consider preparing:
  • Formal agreements w/ an “Assisting Lawyer”
  • Instruction letters to an assisting lawyer
  • Limited power of attorney (but POA n/a if dead) providing for the continued practice of law and arranging for: (1) access to and management of trust accounts, (2) the safeguarding, transfer and/or closing of files, and (3) the safeguarding and/or disposition of assets of both the practice and clients
  • A will
  • with an executor capable of working with “assisting lawyer” to deal with practice
  • that authorizes the executor to enter into arrangements with the assisting lawyer to protect clients and dispose of law practice
  • that authorizes executor to give effect to any agreements made previously with the “assisting lawyer” to sell the practice or deal with practice issues

Closing Down Your Law Practice - from Law Society of Upper Canada - 9.10 Wills

  • Lawyers who have custody of client (testator) wills and are able to locate clients or former clients should, in writing·
  • advise clients that the practice is closing down or being sold
  • if the practice is being sold or transferred, should advise the client of the name(s), address, and telephone number of the lawyer(s) who will take over the practice, and
  • ask for the client's instructions as to whether the will is to be transferred to the new lawyer taking over the practice, to another lawyer as directed by the client, or to be returned to the client.
  • If the will is to be delivered to a new lawyer or third party, the lawyer should obtain the client's executed direction as to whom the will is to be delivered.
  • Lawyers who have custody of client wills and are unable to obtain client instructions or directions, as in cases where the client cannot be located, should
  • in the event a new lawyer has agreed to take custody of the will, and subject to any legal requirements to the contrary, transfer the wills to the new lawyer who shall preserve client wills in accordance with Rule2.07, OR
  • in the event the lawyer is unsure of the proper person to receive a client's will, then in accordance withRule2.07(6), the lawyer shall apply to a tribunal of competent jurisdiction for direction and comply with the tribunal's order, OR
  • the lawyer may retain custody of the clients' wills in compliance with Rule2.07, and
  • Lawyers should not deliver original wills to a client's last known address unless the lawyer is certain that the client is present to accept it.
  • send a letter to the client's last known address advising the client where their will is to be located in light of the practice closing down.
  • Notification of the location of original client wills (i.e. whether sent to new lawyer, kept by you, etc.) should be made to the Trustee Services Department of The Law Society of Upper Canada at 416-947-3366 or toll free 1-800-668-7380 x3366.

Extract from Law Society of British Columbia – 2007 - Winding Up A Sole Practice: A Checklist

13. Decide whether you will store any original wills or transfer them to another lawyer.Remember that you will continue to be responsible for any original wills in yourpossession unless you can find another lawyer to take them. The Law Society will onlystore original wills in very exceptional circumstances.

14. Ideally, a new wills notice should be prepared and filed with Vital Statistics( after consultation with the client, if possible, to note the new storage location of each original will. Vital Statistics charges a flat fee of $1,700 for any numberin excess of 100 notices. An individual notice must be filed for each will, but preapprovedcomputer generated notices will be accepted. Filing a notice with VitalStatistics is voluntary. However, notice to the Law Society under Rule 3-80is mandatory.

15. In order to advise the public and clients you have not been able to reach, you may place an ad in the local newspaper that the practice will be closing as of a specific date and whomay be contacted after that date about files or wills.

Other Professionals - re succession planning

  • Examples: dentists, doctors, actuaries, accountants, etc.
  • Issues:
  • Shouldn’t other sole professionals have similar responsibilities for succession planning?
  • If so, do there professional associations provide succession planning recommendations?
  • Are the considerations different from lawyers?

TRUST LAW AND FIDUCIARY RESPONSIBILITIES
  • Trusts are central to succession and estate planning for 2 main reasons:
  • 1) the estate is a trust (making the executor a trustee w/ corresponding fiduciary duties to the beneficiaries)
  • 2) a will can create a testamentary trust - i.e. the will is a trust instrument.

Trusts

  • A trust is an obligation that binds a trustee to administer trust property under his control, donated by the settlor or testator for the benefit of beneficiaries
  • Trustee holds legal and/or equitable title in the property for the purposes of management
  • Beneficiary holds equitable or beneficial title in the property for the purpose of enjoyment
  • A beneficial interest can be vested (in interest or possession), contingent, future, discretionary and/or defeasible
  • Trusts created by a Settlor
  • Express trusts can be created inter vivos in one of 2 ways: (1) by agreement (S to T for benefit/use of B); or (2) by declaration (S declares himself to be T for benefit of B)
  • Trusts created by a Testator
  • An express trust created by will is testamentary (not inter vivos)
  • e.g. Testator leaves property to T for benefit of B named in will
  • To have a valid trust, the trust property must vest in the trustee (i.e. constitution of the trust)
  • Statutory trusts
  • E.g. s. 43.1 of Pension Benefits Standards Act ER and EE pension contributions held by ER prior to deposit w/ “pension trustee” are deemed to be held in trust by ER for plan members.
  • No consideration moving from beneficiary to settlor is required in trust
  • Writing requirements required where creating equitable interest in real property
  • Trust has no legal personality
  • Trustee holds legal title to property (not trust)
  • Trustee contracts in own name as principal
  • Trustee does not contract or act as an agent of the trust
  • Trustee has unlimited liability
  • Trustee has unlimited liability to 3rd parties in K
  • Trustee has a right to indemnity against trust assets and, perhaps, against beneficiaries personally
  • Butnote: in business trusts, beneficiaries typically excluded from liability
  • 3rd parties cannot sue beneficiaries directly
  • 3rd parties must sue trustee, who can then seek indemnity from beneficiaries personally unless prevented by agreement

Fiduciary Duties

  • Origins of “Fiduciary”
  • Developed in Courts of Equity in context of trusts.
  • Now extends beyond trust situations to remedy perceived inequities.
  • Who is a fiduciary?
  • A person is a fiduciary based on the nature of their relationship with another person (Guerin)
  • Some relationships are generally recognized to give rise to a fiduciary (i.e. trustee-beneficiary, solicitor-client, etc.) (Lac Minerals)
  • However, relationships with some or all of the following characteristics may be considered fiduciary (Frame v Smith)
  • 1) Fiduciary has scope for the exercise of some discretion or power
  • 2) Fiduciary can unilaterally exercise that power or discretion so as to affect a beneficiary’s legal or practical interests
  • 3) Beneficiary is peculiarly vulnerable to or at the mercy of the fiduciary holding the discretion or power (most imp. factor)
  • Fiduciary duties
  • Duty to follow the terms of a trust instrument (e.g. will)
  • Duty to avoid conflicts of interest between trustee’s personal interests and those of the beneficiaries
  • Duty to act prudently and in best interests of beneficiaries
  • Duty to hold an even hand between interests of beneficiaries belonging to different classes
  • Breach of trust
  • Trustee liable to beneficiary for damages arising from breach of trust
  • Trust instrument may alter some but not all trustee duties and relieve trustee from liability for some but not all types of breach of trust
  • s. 96,Trustee Act:court may order discretionary relief for trustee liability if trustee acted honestly and reasonably (see also ss. 15.1 to 15.6 for prudent investments)

Taxation, Revocation, Amendment and Termination of Trusts

  • Taxation of trusts
  • General rule: trusts are taxed on a conduit or flow-through basis
  • Disposition of capital assets by settlor to trustee deemed to be at FMV
  • Income flowing to beneficiaries is taxed in hands of beneficiaries
  • Income retained in the trust is taxed in hands of trustee as separate individual (i.e. no personal exemptions and higher taxation rates)
  • Trustee is required to file annual T-3 Return w/ CRA under Income Tax Act
  • Revocation of trusts
  • Settlor can only revoke trust if such a right is reserved for in the trust instrument (but this has tax consequences under the Income Tax Act)
  • An amendment to a trust instrument purporting to authorize the settlor to revoke a trust is void
  • Amending trust instruments
  • Amendments to trust instruments require one or more of the following:
  • 1) Provision authorizing amendments in trust instrument (overrides 2 and 3)
  • 2) approval by all adult beneficiaries
  • 3) approval by court for infant and unborn beneficiaries pursuant to Trust and Settlement Variation Act
  • Termination of trusts
  • Occurs once all trust property has been distributed by Trustee in accordance w/trust instrument
  • Exception: Rule in Saunders v Vautier whereby all adult beneficiaries can ask a court to terminate the trust, regardless of trust instrument provisions

Probate Fees and Applications

GENERAL:

  • Applies to grant of probate applications (“letters probate”) by requiring personal representative (executor) of estate to pay the BC government probate fees calculated based on the value of the estate (as defined in s. 1, Probate Fees Act).
  • Not all assets are included in the “value of the estate” - 2 main requirements:
  • (1) if real and tangible property, it must be situated in BC, or if intangible, deceased must have been ordinarily resident in BC, and
  • (2) property passes to personal representative (i.e. not joint tenant or designated beneficiary).

Note: Insurance policy designations to “heirs”, “next of kin” or “estate” are deemed to be designation of the personal rep (s. 103, Insurance Act)