The devil is in the drafting: is an estate entitled to spousal support payments?

The recent Alberta Court of Queen’s Bench decision in Marasse Estate (Re), 2017 ABQB 706 is yet another reminder that drafting legal documents must be done carefully and with a view to their long-term effect. The main issue in this case was whether the surviving ex-spouse was obligated to continue paying spousal support to his deceased ex-spouse’s estate.

Justice Mah found that, based on the wording of the parties’ specific Separation Agreement, the husband was obligated to continue making spousal support payments to the deceased former wife’s estate.

By way of background, as part of their separation, the former spouses entered into a Separation and Property Agreement.  Both were represented by counsel.  Both parties knew that the wife had been ill for several years.  Under the Separation Agreement:

  • The husband agreed to pay monthly spousal support of $3,000 for 5 years;
  • The parties gave up their right to review or vary the entitlement, quantum and duration of spousal support even if there was a material change in circumstances of either party;
  • The husband was required to secure payment of the support through an insurance policy;
  • The agreement contained a relatively standard clause that it was binding upon and would enure to the benefit of the parties’ heirs, executors, administrators, successors and assigns

While the Separation Agreement dealt with the division of property should one spouse predecease the other, it was silent on how the spousal support payments would be treated if the wife died before all of the payments had been made.

The wife died about 8 months after signing the Separation Agreement.  According to its terms, the husband was still responsible for 52 monthly payments, equivalent to $156,000.  The wife’s daughter, who was her personal representative (and presumably a beneficiary), applied to the Court to enforce the Separation Agreement on behalf of her mother’s estate.

The husband sought to vary the agreement.  He argued that with the wife’s death, she no longer had an economic need for support.  The Court disagreed, finding that while contractual spousal support could reflect the theoretical bases of compensatory and non-compensatory spousal support, the parties did not have to adhere to those theoretical objectives when entering into separation agreements.

The husband also argued that spousal support was a personal right, which could not pass to an estate.  However, Justice Mah distinguished cases where spousal support was ordered by the Court, versus those cases where the parties agreed to pay support in a contract.  He considered the enurement clause, the non-reviewability clause and the comprehensive nature of the Separation Agreement to conclude that the Separation Agreement created a juristic reason to continue the support payments.  There was no reason to vary the Separation Agreement under the test set out in Miglin v Miglin as applied in Alberta.  The Court declared that the husband’s obligation continued notwithstanding the wife’s death.

In conclusion, individuals negotiating separation agreements should recognize the potential long-term effects of contractual spousal support payments on their estates.  Carefully consider your intentions and ensure that your separation documents truly and clearly reflect those intentions.

Thank you for reading!

-Predrag

It’s your funeral, but who calls the shots?

If you have a will, you may have spelled out your detailed wishes for your funeral in the document.  Would you be surprised to know that your personal representative does not have to follow them?  You may have also heard that funeral expenses get paid out from an estate in priority to all other expenses.  So, who actually has legal responsibility for arranging and paying for the funeral?  And what should you keep in mind at the outset when the question of funeral arrangements comes up?

 

Who has the legal duty for funeral arrangements?

In Alberta, it is well-settled that the personal representative named in a will has the sole legal responsibility and authority for making funeral arrangements.  That authority is confirmed by the Estate Administration Act, the Funeral Services Act, the Cemeteries Act and their respective regulations.  That means the personal representative does not have to follow funeral instructions in a will, though the vast majority do.

If there is no will or the personal representative is unavailable or refuses to give burial instructions, then the law gives the following people priority: spouse, adult child, parent, guardian, increasingly more distant relatives, with the Minister of Human Services being a decision-maker of last resort.  Where there are two or more individuals of equal rank, the right devolves on the eldest.  The Court has the discretion to vary the order of priority among all of the above categories.

 

Who has to pay for the funeral?

In Chernichan v Chernichan (Estate), 2001 ABQB 913, the Alberta Court of Queen’s Bench confirmed that the deceased’s estate has the primary responsibility to pay for the funeral expenses.

In that case, the deceased’s brother paid for the funeral out of his own pocket.  The personal representative used estate funds to pay out other estate debts before paying the brother back for the funeral expenses, leaving the estate insolvent.  The brother claimed that he should have been paid back in priority to all other creditors, including Canada Revenue Agency.

The Court conducted an in-depth review of the law and concluded that where the estate is insufficient to cover the funeral expenses, a secondary responsibility falls on the person responsible in law for supporting the deceased.  Therefore, a surviving spouse, adult interdependent partner or a parent of a minor child may have to make up the shortfall.  The residual responsibility to pay for the funeral rests with the Minister of Human Services.

In Chernichan, the Court also held that funeral expenses are entitled to a priority over other estate administration expenses and liabilities, except for the expenses of proving a will.  The personal representative, being the deceased’s wife, was ordered to pay the expenses to the brother.

 

What is a reasonable funeral?

The liability of the estate, the personal representative, and the responsible survivors for funeral expenses is limited to reasonable expenses.  There is no universal answer as to what is reasonable.  The analysis will depend on the deceased’s station in life, size of the estate and cultural background.  For example, in Lopushinsky Estate, 2015 ABQB 63, the Court held that a $26,000 funeral was reasonable given the deceased’s highly respected status in his community (the funeral required overflow seating and a video link to the service because of the number of attendees), the fact that he spent a similar amount on his wife’s funeral a year before, and the size of his estate.

 

Things to keep in mind at the start

On the planning side, pre-paid funeral arrangements may decrease family disputes about the type of funeral you want and will make the job easier for your personal representatives.  They also eliminate the risk of there being inadequate assets to pay for the funeral.

Whether you are an executor or a family member who is making funeral arrangements, always consider the reasonableness of the cost of the funeral in light of the deceased’s station in life and expressed wishes before making the final arrangements.

While personally paying the funeral expenses may be a generous gesture, one would be well advised to consider the likelihood that estate assets will be sufficient to reimburse those expenses.  Finally, ensure that your intentions with respect to the payment are documented at the outset – is the payment meant to be a gift or simply a short-term loan to the estate?

Funeral arrangements have the potential to set the tone for the rest of the estate administration.  Taking care to make the right decisions at the start is important and personal representatives and family members should not rush into decisions during the difficult and emotional time immediately following a loved one’s death.

 

Let us know if you have any questions or comments and thank you for reading.

-Predrag

You can ask for advice and directions

Acting as an executor or personal representative is a challenging job.  A personal representative is expected to follow the terms of a will, trust document or Court order and to do so prudently and competently.  Sometimes, the testator or the settlor of a trust adds to an already difficult job by creating an unclear will or trust document which leaves the personal representatives guessing as to the deceased’s true intentions.  Other times, what the beneficiaries want conflicts with the instructions in the will or trust.  Since personal representatives may be personally liable for decisions made in the course of their administration, they should ensure they are making the correct decision.

Fortunately, a personal representative who is faced with an unclear and confusing document or a situation not contemplated by the document can seek advice and directions from the Court.  Generally, if the Court provides directions and the personal representative follows them, they will not be personally liable even if the decision leads to a loss to one or more beneficiaries.

In Alberta, authority for seeking the Court’s advice and directions is found in several statutes.  Personal representatives can turn to the

  • Estate Administration Act, which allows a personal representative to apply to the Court for advice and directions on any question respecting the management or administration of an estate.  The personal representative is shielded from liability if he or she follows the Court’s direction on the particular issue.

 

  • Surrogate Rules, which give the Court a very broad discretion to consider applications for directions by personal representatives or persons interested in the estate regarding practice, procedural or other issues and questions and ways to resolve them and “any other matter that may aid in the resolution or facilitate the resolution of a claim, application or proceeding or otherwise fairly or justly resolve the matter for which direction is sought.”

 

  • Trustee Act, which has a similar provision to the Estate Administration Act, allowing trustees to apply for advice and direction and absolving them of liability when acting on the opinion, advice or direction of the Court as long as there is no fraud or misrepresentation by the trustee.

A Court will not make a personal representative’s decision or exercise discretion for him or her.  Therefore, a personal representative should come to Court with a particular plan of action, which the Court can approve, deny or modify.  Most often, the Court will give directions on the steps to be taken to bring about a desired result or to move a matter forward.  However, the Court can also make determinations of fact and substantive rights of one or more parties.  Courts have in the past given advice and directions to:

  • break a deadlock among personal representatives;
  • determine if a particular individual qualifies as a beneficiary;
  • determine if a charitable gift fails where a charity has been incorrectly described or no longer exists;
  • determine if it was prudent for a personal representative to pursue collection of certain assets by way of litigation, or whether it was prudent for the personal representative to use estate assets to defend a claim; and
  • set down litigation plans to ensure that a contentious matter begun under a related Act or under the Surrogate Rules proceeds efficiently and in a timely fashion.

This is not an exhaustive list and the broad discretion given to the Court makes the application for advice and direction a powerful tool to advance the administration of an estate or a trust.

If you are a personal representative in Alberta who needs some clarity on an estate or trust administration matter, Field Law can help.  Do not hesitate to contact me to discuss in more detail: ptomic@fieldlaw.com or 403.260.8511.

Thank you for reading.

Define your children in your will

Clarity matters when preparing your will and estate plan in Alberta.  Even a seemingly simple direction to divide your estate equally between your children may run into unexpected problems if you have a complex family structure and are not clear enough about your wishes in your Will.  In recent Alberta Court of Queen’s Bench decision, the question arose whether a foster child was included in the definition of “children” in the deceased’s Will.  While it was not at issue in this case, the same kind of issue could arise in the context of step-children.

Briefly, the deceased died in early 2016 with a Will.  She was survived by three biological daughters, a legally adopted son and a foster child.  All of the individuals were adults at the date of the deceased’s death. Her Will stated that the residue of the estate was to be divided equally between her children.  Other than the personal representatives, the Will did not refer to anyone else by name.  The biological daughters brought a Court application seeking a judicial interpretation of the residuary gift clause.  Specifically, the issue was whether the foster child was included in the definition of “children” and entitled to a share of the residue.

The Justice first considered the applicable legislation and the wording of the Will itself.   He determined that they were of little assistance in this case.  The significant conclusion about the applicable legislative provision was that generally, a reference to children in a Will must be interpreted to include biological children of the testator, unless a contrary intention could be found in the Will.  In contrast, the legislation does not automatically exclude non-biological children from that definition.

The Justice then turned to external evidence of the deceased’s intentions at the time she signed her Will.  In Alberta, such evidence is admissible to interpret a will in a manner that gives effect to the intent of the testator.

The key evidence before the Court was that the deceased signed a Power of Attorney and a Personal Directive on the same day as the Will.  She appointed the foster child as one of her attorneys and agents, respectively.  In both documents, the deceased specifically referred to the foster child as “my daughter”.  The deceased named one of her biological daughters as the other attorney and agent and also referred to her as “my daughter”.  That evidence was sufficient for the Court to conclude that the deceased intended to include the foster child as one of her children in the Will.

The Court considered other evidence, both in support of, and adverse to, the foster child provision, including a prior Will that specifically named the children in the residue clause and included the foster child.  For the Court, none of the additional evidence undermined the conclusion that the deceased intended to include the foster child in the definition of her children at the time she made her last Will.  The foster child was thus entitled to an equal share of the residue.

Your Will is your chance to specify how you want your estate to devolve after your death.  The takeaway point from the above case is that the drafting of the Will should be as clear and unambiguous as possible, particularly if you have a complex family structure, to avoid the risk of future disputes between the beneficiaries.

Thank you for reading.

The King of Pop on death and taxes

Today is the eighth anniversary of the death of Michael Jackson, the undisputed King of Pop. Albertans preparing wills and estate plans should look beyond the sensational headlines about the singer’s life and the circumstances of his death and consider the issues faced by Jackson’s estate when creating their own estate plans. Using Jackson’s estate as an illustration, this blog post will focus on general tax considerations for estate planning in Alberta.

The Jackson Estate’s tax troubles

This is a highly simplified summary of the issues that Jackson’s estate faced following his death. The King of Pop passed away unexpectedly on June 25, 2009. He left behind a will which established a testamentary trust for the benefit of his mother and three children. It was alleged that Jackson died with significant debts, such that the estate was essentially worthless. The Internal Revenue Service (IRS) disagreed and identified a lengthy list of allegedly incorrect valuations and deficiencies by the personal representatives of the estate. The IRS took the position that Jackson’s name, likeness and other intangible assets were worth $434 million. With penalties, arrears and legal fees, it was estimated that tax-related estate administration costs would approach $1 billion. The matter went to trial in February 2017, and as far as we have been able to uncover, the decision is still pending. In the meantime, Jackson’s executors managed to generate significant income within the estate by monetizing his catalogue, name and image.

What does this mean for me?

In Canada, when someone passes away, the Income Tax Act deems them to have disposed of all of their assets at fair market value. Those deemed dispositions are reported on the Terminal Tax Return, which has to be prepared and filed by the personal representatives of the estate.

If you pass away while employed, with a business, investments or other assets that appreciate over time, there is a strong likelihood that your estate will have to pay some tax. However, there are a number of ways to plan during your lifetime to either minimize the tax your estate will have to pay, or at least to ensure that your estate will have sufficient resources to pay the tax after your death. A full review is beyond the scope of this blog post, but below is a list of things to consider when updating your estate plan:

  • If you gift property to your spouse or common law partner, the tax that your estate would have otherwise owed can be deferred to the death of the second spouse or partner
  • RRSPs and RRIFs can be rolled over to spouses and common law partners, minor children or disabled adult children who are your dependants, so that the tax is deferred until their deaths
  • A beneficiary of an RRSP or RRIF typically receives those proceeds directly outside of the estate. If you designate someone other than a spouse, common law partner, minor child or disabled adult child, no tax deferral is available, and your estate will pay the full tax on that asset. If the beneficiaries of the RRSP/RRIF are different from the beneficiaries of the residue under your will, you may be giving a windfall to one set of beneficiaries to the detriment of the others
  • If you have multiple properties, consider claiming the principal residence exemption on the property with the highest capital gain
  • If you own a family business, it may be appropriate to implement an estate freeze at a time that you are prepared to transition the growth in the business to the next generation – an estate freeze will allow you to crystallize your tax liability on the business assets so that you can plan for its payment accordingly
  • If you own property in multiple jurisdictions, make sure to organize your affairs so that your estate is not paying tax in both jurisdictions
  • Consider purchasing life insurance in a sufficient amount to cover the estate’s anticipated tax liabilities. Properly document your wishes with respect to the life insurance proceeds so that they are used in the manner in which you envisioned
  • If you are a creative individual who has tangible or intangible assets such as copyrights, trademarks, artistic works and licensing agreements, those assets carry a fair market value and will need to be addressed as part of your planning process

These are only some examples of the tax planning considerations that you may wish to consider or access in your estate plan. The best results usually arrive from a competent team of professional advisors including your accountant, lawyer and financial/insurance advisor who work together and with you to achieve your objectives.

Estate planning is an important task at any stage of adult life. If you are thinking about implementing your first estate plan or updating your existing one, Field Law can help you identify your needs and implement a plan that gives effect to your wishes. Give us a call at 403.260.8511 or email to ptomic@fieldlaw.com to start the discussion.