Law Times

Law times • OctOber 25, 2010 An online resource 1.800.263.3269 Focus On TRUSTS & ESTATES Globalization adds new wrinkles to estates law BY ROBERT TODD Law Times A s the world economy continues to globalize, Canadian families are increasingly being split apart by international borders. Th e shift means they're calling on lawyers to manage trusts and estates matters with signifi cant cross-border components. Barry Corbin of Corbin Es- tates Law says one of the most frequent situations trusts and es- tates lawyers now face involves a parent whose executor child has emigrated to the United States. For non-residents to receive var- ious relevant documents, such as grants issued by the court, they must fi rst post a bond. Th at can become a problem, says Corbin. It could be that the child doesn't want to make the disclosure required by the bonding company since it in- volves an intrusive fi nancial examination. Also, the person may not have the resources re- quired to satisfy the bonding company. "If they don't want to post the bond or can't post the bond, then they can't be the execu- tor," says Corbin. "Sometimes, the only result is that they have to renounce, and that certainly is not something that your client, who appointed that child, would want to see happen." Corbin takes a proactive approach in order to keep that from happening. When- ever a client expresses an in- terest in naming an out-of- country executor, he explains that the person may have to post a bond to carry out the duties. Th e client will typi- cally then ask the prospective executor if they're likely to be able and willing to post a bond. "So really, it's probably a conversation between the parent and the child to make them aware that there's going to be an issue," says Corbin. "Otherwise, it's going to be a big surprise, and the law- yer's going to be asked, 'Why didn't you tell my father?'" Starting in 2011, U.S. estate tax will come back into play, which will once again make it a consideration in this context. According to Corbin, a com- mon strategy to minimize the tax hit involves placing prop- erty in joint ownership. Take, for instance, someone with a valuable property in a place like Florida. Common wisdom has seen people take the view Putting U.S. property under joint own- ership to reduce estate taxes doesn't always work, says Barry Corbin. that if they have joint owner- ship and one person dies, the property isn't part of the estate and therefore no U.S. estate taxes will apply until the death of the fi nal part owner. But that's not necessarily the case, says Corbin. "Th e [Internal Revenue Ser- vice] takes the view that, where property is held in a joint ten- ancy where there's a right of survivorship that applies, the U.S. estate tax will not thereby be avoided unless everybody actually paid for the right to be an equal owner," he says. Th e IRS assumes that the fi rst one who dies was the real owner of the whole thing and simply added on the other people's names, he notes. Th at means the onus is on all of the surviving fam- ily members to show that they actually paid their share of the value of the property. As an example, all three surviving part owners of a $200,000 property would have to show they each paid $50,000 towards the value. "Th ere's an example of how your planning may have been ineff ective," says Corb- in. "Clearly, you need to talk to a U.S. tax specialist to fi nd out if there are other options for arranging ownership so as to minimize U.S. estate tax." Some people will go so far as to create two wills, one for their U.S. assets and another for their Canadian holdings, says Corbin. Doing this re- quires an investigation of the relevant laws of the individual U.S. states where the assets are held. Th e idea behind that tac- tic is that executors can take advantage of what has been called parallel processing. "If there's a problem with your Canadian will that holds up the administration of the assets in Canada . . . you can get the ball rolling with the property in the United States by probating that will that governs the U.S. property while you sort out the problems you have locally," says Corbin. "It's not a critical thing to do but it's frequently recommended." Meanwhile, Kim Whaley of Whaley Estate Litigation be- lieves it's crucial to get relevant local knowledge of any jurisdic- tion involved in a fi le, whether it's in Canada or abroad. "I think that it's prudent for any lawyer if you're working in Ontario and you have issues that arise as a result of other legislation," she says. "Make sure you get assis- tance from local counsel." Whaley notes that nuances of each Canadian province can change how lawyers should handle these issues. Any new knowledge they pick up as a re- sult is unlikely to go to waste as more Canadians are expected to have dependants elsewhere. "We get around more," Whaley says. "Given the de- mographics and people retiring in diff erent places yet keeping property in Ontario, we are seeing it more." LT Trustee to repay $42K for misusing authority BY ROBERT TODD Law Times trustee after a judge found her to have misused her authority in the role. In a strongly worded judgment, Su- A perior Court Justice Th omas Lederer denounced the behaviour of Josephine Polk, who was among three executors of the will of Scarborough apple farmer and animal-welfare activist John Wat- son. Justice Wailan Low ousted Polk from that role in 2006 after a series of contentious moves. Th ey included her failure to disclose a $145,000 personal debt owed to the $7-million estate and threatening to have Watson's beloved pets, which she was caring for, eutha- nized if forced to repay the money. "Being asked to be the trustee of an estate is not a gift," Lederer wrote in Watson Estate v. Beatrice Watson-Acheson Foundation. "Being a trustee is a respon- sibility through which the deceased seeks the help of people he or she has faith in to be sure that the assets of the estate are woman has been forced to re- pay more than $42,000 she re- ceived for serving as an estate distributed or disposed of consistent with his or her desires. To misuse the trust or fail to understand the task is a breach of the faith of the person who is dead." Watson, who died in July 2004, nev- er married and didn't have children. He had two cats and three dogs at the time of his death. In 1999, he created the Beatrice Watson-Acheson Foundation to promote animal welfare. According to Lederer's decision, those who knew Watson were troubled by his decision in the days before his death to make a new will that dropped one ex- ecutor of his estate and added Polk. Th e new will included a provision that any decision made for the estate required the approval of a majority of the three trust- ees with the caveat that Polk must be among the majority. One person even fi led an affi davit indicating that Watson had earlier expressed his desire that Polk not be an executor of his will. Low heard a motion to remove Polk as executor over four days in May 2006. Th e judge concluded that Polk seemed to have a "misapprehension" of her du- ties as a trustee. "Ms. Polk launched a number of proposals or initiatives that, if translated into action, would cer- tainly have amounted to breaches of the duties of the executors." Th e judge credited the eff orts of the other two ex- ecutrixes of the estate and its solicitors, Miller Th omson LLP, for putting a stop to most of these attempts. According to Low, Polk's actions in- cluded such things as an eff ort to auc- tion off Watson's fi ve-acre property and home without appraisals and use funds to commission a book about him. Most concerning, according to the judge, was Polk's desire to block funds from going to the foundation until it had "proved its viability." "While not blaming Josephine Polk alone, Madam Justice Low made clear that the course of conduct surrounding the administration of the estate of John Cameron Watson was likely to create dysfunction and ill-will among the ex- ecutrixes," wrote Lederer. As well, Polk had received a $145,000 loan from Watson in 2003 in order to consolidate her debts, which he took out a mortgage to facilitate. Polk was to make monthly deposits to a joint ac- count to pay down the mortgage but www.lawtimesnews.com stopped doing so after Watson's death. Low found that Polk had failed to dis- close the loan in her role as executor. Low also noted Polk's treatment of Watson's pets after he died. He had two cats and three dogs, but his fi nal will included no provisions for payment of expenses related to their maintenance. Rather than leave them on the farm with Watson's handyman, who contin- ued to reside there, Polk "insisted" on moving them all to her home, according to Low's decision. Polk had six dogs and 15 cats of her own. Rather than adopt the animals, she submitted thousands of dollars of costs for their food and shelter to the estate. Th e other executrixes later refused to make the payments. In addition, Polk told the other exec- utors that if she was forced to pay back the $145,000 loan, she would have to move into an apartment and have the animals euthanized. "In my view, the animals were being used by Ms. Polk as a source of income for her acquaintances at the expense of the estate, and the fact that she discon- tinued the expenditure once the other See Estate, page 11 PAGE 9

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