February 28, 2023 | Hosted by Leanne Kaufman
Learn why your family dynamics are important when choosing an executor, passing down belongings and more
“I would say that family dynamics play a role in 100% of all estate litigation disputes. Even without being so bold, I'd certainly say that it is a dominant factor in the vast majority of the estate disputes.”
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.
In her book, The Liar’s Club, author Mary Karr says, “A dysfunctional family is any family with more than one person in it.” Well, I’m not so sure she’s wrong. And there are few areas that can push buttons and pull triggers more on long-standing family dynamics than estate planning or the death of a relative. Taking family dynamics into consideration when planning an estate is so important, especially when appointing executors and trustees. But it’s an area that seems to be discounted or completely ignored by most.
Hello. I’m Leanne Kaufman, and welcome to RBC Wealth Management Canada’s Matters Beyond Wealth. My guest today is lawyer Howard Black, a partner at Miller Thomson LLP, where he focuses on estate litigation and mediation of estate disputes, which puts him in a unique position to talk about the impact of family dynamics on estates. Howard has extensive experience in all aspects of estate planning and administration, and is a regular speaker and contributor to legal education programs sponsored by the Law Society of Ontario, the Ontario Bar Association, as well as other organizations. For over 30 years, Howard has been an adjunct professor at Osgoode Hall Law School, teaching courses on Wills and Estates and Estate litigation. He’s published three editions (and is currently working on the fourth edition) of Wills and Estates: Cases, Text, and Materials. Howard is ranked by his peers as a “Consistently Recommended” lawyer in The Canadian Legal Expert Directory and is recognized in The Best Lawyers in Canada.
Howard, thank you for being here today with me to discuss family dynamics in estates and how this matters beyond wealth.
Thanks very much, Leanne. It’s a pleasure to be here with you.
Let’s start with a big picture. You are, as I mentioned, an estate litigator, meaning you represent the interest of one side of an estate dispute. But you’re also a mediator where your role is to try to help the parties collectively resolve their differences outside of the courtroom. So as I said in the intro, that puts you in a pretty unique position of expertise in this area. If you had to guess, what percentage of the estate disputes that you get involved in are family dynamics a significant underlying cause of the dispute?
Leanne, if you don’t mind before I answer that specific question, I wouldn’t mind just making one introductory comment, which we’ll hopefully put into the proper context, the basis of a number of opinions that I may express today. And that’s this: I started my career as a lawyer doing exclusively estate planning work, and over the years I transitioned into estate administration and estate litigation work, and laterally adding mediation of estate disputes. Today I continue to practice in all of these areas, and the point that I want to make is that my exposure to the variety of estate litigation situations in which I’ve been involved, either as a council or as mediator, has made me much more sensitive and knowledgeable about the types of issues that ought to be taken into account in the estate planning process. I’ve often said that there are many good technical lawyers out there, but when it comes to estate planning, there are, in my view, many non-technical or I sometimes call non-legal issues that need to also be taken into account in order to minimize the potential for estate disputes down the road.
Putting that in context, I’ll now quickly respond to your specific question, and I would answer it in this way: if I wanted to go out on a limb, I would say that family dynamics play a role in 100% of all estate litigation disputes. Even without being so bold, I’d certainly say that it is a dominant factor in the vast majority of the estate disputes. In fact, that was the thesis of my major research paper that I wrote towards obtaining my master’s degree of law in alternative dispute resolution. So family dynamics play a huge role.
I didn’t even know that part, you’re even more qualified to talk on this particular topic. Were there any common themes when it comes to family dynamics in this area that you see? Any characteristics that might be red flags for families to watch out for as they go through their own planning?
Yeah, there are probably all kinds, and look, we have to start from the premise there’s nothing that can be done in the estate planning context to change or alter the family dynamics. They’ve been formed years, sometimes decades earlier. The key I think is to inquire into the various relationships among the people who will be involved in the estate, and to take steps to minimize as much as possible the areas for potential fights. Some, but certainly not all of the red flags may include some of the following. For example, a parent marries a new spouse at a later age in life or even earlier in life, which then creates a stepparent–stepchild relationship, blended families. One or more potential beneficiaries being financially dependent on the parent during their lifetime.
Another one may be the nature of the existing relationships among the siblings and their partners with each other and I put the sibling and their partner as one entity. Even though relationships may appear to be seemingly fine, one shouldn’t be misled about this. I believe that the real colours sometimes don’t reveal themselves until after the second parent has passed away.
And it’s hard to perhaps think that that’s going to be your family. It’s easy to say, it’s not going to happen with my family.
Nobody thinks that way, you’re 100% right. One of the difficulties is the problems only arise after the planner is no longer around. They don’t see it and they don’t believe it and they don’t want it. They don’t want to even think about that potential. That’s a real challenge to try and involve clients in the estate planning process to at least be open to consider that possibility, even as remote as it may be, to even be sensitive to the remote possibility that some dissension or dispute could arise within their loving family.
What about the dynamics when a family business is involved? I mean, we know it can get complicated, particularly I think when one or a few of the children are involved in the business and others aren’t. What have you seen in that regard?
That can be in…if we continued on a list of hot button issues, that would be one for sure. Having one or more children, but not all of them involved in a family business just adds another layer of complexity that has to be analyzed very carefully. Just some, but far from all of the considerations to take into account are some of these. For example, first of all, is the business intended to continue following the death of the principal, let’s say that was the parent? Secondly, is the estate large enough so that other non-business assets may be used to equalize benefits going to the children who are not involved in the business? What amounts of money are owed by the business to the principal, to the parent, let’s say, and later on will be owed to his or her estate? What mechanisms are going to be used to ensure that those monies get repaid to the estate in a timely manner? How is that going to impact on the business?
If more than one child is involved in the business, you may want to consider implementing a structure to minimize the potential for future disputes among them. Then added to all of that, clearly from a more tax planning specific focus is taking steps to minimize the payment of income taxes and probate taxes in respect of the business that will occur following the death of the principal or the parent.
We had an earlier conversation in a previous episode with Robin Goodman about insurance and using insurance as a potential strategy to equalize was something else, but it all comes back to, as you said from the outset, trying to plan and trying to get in front of these, recognize these potential issues and do something about it ahead of time. How important do you think it is to consider family relationships when you’re thinking about who you’re going to appoint as your executor, your power of attorney, your trustee, whatever role it is that’s being planned for?
The appointment of executors is potentially one of those hot button items as well, it’s an extremely significant piece of the estate planning process. I say to clients and to others often that the choice of executors to be appointed in your Will is sometimes as important and significant a decision as who the assets are going to be distributed to. Serious disputes, additional costs, delay in the administration of the estate may unfortunately be a byproduct that flows from your choice of executors or attorneys under a power of attorney if the right decisions are not made. My thoughts on this and my experience on this has changed over the years. When I first started into practice and the typical clients come in the door, let’s say they have three children. The three children are going to be the beneficiaries of the estate, and the parents think, “Well, I’m just going to name those three children to be the executors.” While that may instinctively make some type of rational sense, I’ve come to the point of saying quite boldly that is something that ought to be avoided. To the point that when I meet with clients now, I actually express a bias against having children as executors to the point of putting the parents, let’s say, to the challenge of trying to convince me why having the children named as executors makes sense. After which I’ll then proceed to share with them all of the potential pitfalls. As an alternative, I really think the clients should consider seriously the appointment of an independent third party, and whether that be a professional advisor or a trust company, like Royal Trust, to act as either the sole executor or perhaps together with the children, so that the independent executor say the trust company, Royal Trust, has the necessary authority to make decisions where the children can’t agree.
I think it would surprise a lot of listeners that your initial advice is don’t do the children, don’t name the children, but I think, you come from a place of experience where you say it with all due respect, right?
Well, that’s what I try and do, you’re right. Does it come as a surprise? I’m sure. And you know what, it’s interesting, I consider my job as a lawyer to be one of just educating the clients. I often use the analogy, I’m like the wait person in a restaurant where you go to dine and when you go into a restaurant, you expect that the person, the server coming to your table is going to describe to you and explain all the specials of the day, all the ingredients, what the dishes are like. Then after you’ve done that, the patron will then decide what dish do they want to order.
In a way, I feel like I’m the server in the restaurant. The client comes in the door, my role is to educate them as to the risks, the pitfalls, the opportunities that are available for planning, which most people wouldn’t have a clue of all of the possible alternative planning mechanisms that are available. I won’t, of course, I’m not going to coerce them by any stretch of the imagination into going one route or another. I educate them, I try to educate them as best I can, then I turn to them and say, “Okay. Based upon what you’ve heard, what dish do you want to order for your meal? Which alternative do you want to follow?”
Well, I think the best servers will also not just give you the options, but if asked for their opinion will give you an honest assessment of what might be better than something else, and it’s at our peril to go against those opinions, much like at our peril to go against your sage legal advice.
That’s so true, that’s so true. And often, clients will turn to me and say, “Well, what would you do? What would your advice be to me?” You have to tread carefully because you don’t want to be unduly pressuring them or influencing them, but I’m certainly not shy to provide my opinions to them, so I’ll do that when asked.
What strategies would you recommend, or have you seen families deploy that have helped avoid conflict in estates, in some of these more common areas, anything you can share?
A good question, I guess a couple of things come to mind. One of the causes of dispute that I see often arises is simply as a result of surprise. Surprise on the part of the beneficiaries, they didn’t expect that they would see what ends up being in the Will. In some situations, people may be reluctant to share with their children the details of their Wills. And quite frankly, I feel quite strongly about that, that is something that ought to be kept private if that’s what they want. On the one hand, it isn’t any of the business of the children to know the details of the Will, but on the other hand, if there is something in the estate plan such as a disproportionate division of assets or something that might cause some shock, some surprise, some upset, it may be appropriate to communicate that to the children in advance.
So that just to—they may not like it—but it at least it’ll eliminate that element of surprise. One of my colleagues a number of years ago, promoted the holding of an estate planning, almost during that stage, a family conference during the estate planning process that brings everybody into the discussion. The thought is that there would be an opportunity for everyone to share any grievances that they have, get it out on the table while mum or dad’s still alive. Personally, I don’t think that such an objective will be achieved. For one simple reason, I think children will be reluctant to share their true feelings in front of their parent for fear that the parent may react in a negative way towards them.
And then maybe cut them out.
Yes, and added to that is that quite often the grievance is being felt not necessarily by the child, but by the child’s spouse or partner. We talk about strategies, the division of personal effects. People think that estate disputes only arise in large estates when there’s significant value, and I can tell you my experience is just the opposite. I’ve been involved in estate’s disputes where there has been a great significant value in the estate, and others where there has been extremely minimal value in the estate. Because it comes back to how we started, the disputes arise and are sourced in interpersonal emotional issues. An area that brings out the emotions and give rise to a great amount of emotional attachment are personal effects.
The division of personal effects, even though there may not be great monetary value to them, often cause a great deal of dissension. There are planning opportunities to deal with them, too. Everything from as informal as putting yellow post-it notes on items with the name of the intended beneficiary—a lot of people, in my experience, seem to do that—to structuring a more formal selection ordering process in the Will, to a type of auction process in the Will with or without using real money, and all kinds of things. Looking at how personal effects are to be divided is something attention ought to be given to that as well, because that’s a source of potential disputes down the road for sure.
Well, and I think a lot of these things that we’ve talked about, it starts with the awareness that it could be an issue and trying to get in front of it, whether you’re successful or not, may remain to be seen. Howard, if you just wanted our listeners to remember one thing about family dynamics and the role it can play in considering their estate planning, what would that one thing be?
Well you know me, Leanne, and I can go on and on, so to limit it to one thing is a real challenge for me. I would say if you’re forcing me into that, I would say going back to comment I made earlier, seek appropriate advice from someone who’s knowledgeable not only in the technical legal aspects of estate planning, but who’s also knowledgeable and experienced in designing ways as part of the estate plan to minimize the potential for disputes down the road. That’s the key message, and then I think there’s an onus on the party, and you alluded to this just a minute ago, that when seeking that advice, keep an open mind, be honest. Although you may not want to necessarily anticipate a problem, at least be open to the remote possibility that there may be a problem down the line.
Well that’s great advice. I know we could talk longer on the topic, Howard, and maybe we’ll come back and go a little deeper on some of the things we raised on another day. But for now, thank you so much for joining us today to talk about the complications that family dynamics can create in estates and why this matters beyond wealth.
You can find out more about Howard on LinkedIn or at millerthomson.com .
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Until next time, I’m Leanne Kaufman. Thank you for joining us.
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