A few of the prior columns have addressed the need for business owners to take the steps necessary to fully plan and document their estates. This column is an example of how not to plan an estate.
The Supreme Court of Canada, in a case referred to as Cowper-Smith v. Morgan, 2017 SCC 61 dated December 14, 2017, was required to resolve a family estate fight concerning one sibling’s claim that he had been given the family home in Victoria AND the investments of his mother to the exclusion of his brother and sister.
Here’s how a family was so messed up that it took the 9 justices of the Supreme Court to sort out their problems:
In 1992, the parents of the 3 siblings advised their children that their estate would be divided equally among them. The father then passed away, and to address some estate planning issues, the mother, Elizabeth, elected to add the daughter (Gloria) to the title of the house and as the joint holder of the investment portfolio (and it’s my guess that this was done to minimize the BC probate fees). Elizabeth, however, took the planning one step further by preparing a trust declaration that Gloria would be ‘absolutely entitled to those assets upon her death’, which essentially caused the two sons to be written out of Elizabeth’s will.
In 2005, Elizabeth became ill and could no longer live at home on her own. At that time, her son (Max) agreed to move back to Victoria to care for her and in doing so he gave up his job, his cottage lease, his contact with his children and any social life that he had. Max was smart, however, and said he would only do that if he was provided a 1/3rd interest in the house and the investments (reducing Gloria’s claim to 2/3rds of the estate) which Elizabeth agreed to but she didn’t revise her will again. Elizabeth then passed away, Gloria, being the sole owner of the house, decided to sell it even though Max was still living in it. Max and the other brother decided to sue their sister to either stop the sale and to reclaim their 2/3rds interest in their mother’s estate with their claim based (mostly) on Gloria’s ‘undue influence’ of her mother.
The brothers were successful in their original claim as the BC Supreme Court ruled in their favour. Gloria was not happy with the result and appealed to the BC Court of Appeal (and she lost there too). Still not satisfied, she again appealed to the Supreme Court of Canada and she got the result she wanted.
In introducing this legal decision, readers have to understand what happens in estate litigation. While the disputes in these cases are usually between the beneficiaries, ALL of the legal costs and expenses are borne by the estate (with the only exceptions being when the trustee (Gloria in this case) takes steps that are essentially fraudulent). In arguing a position to the Supreme Court, the legal fees would have bankrupted most estates. My guess in this case was that the estate was very sizable; otherwise the issues would have been sorted out much earlier. While Gloria may have won the battle, she also lost the financial war.
Think, however, how this matter could have been addressed by Elizabeth by meeting with Gloria, Max and their brother to understand their wants and needs of her estate. While that meeting could have brought on fireworks in the family, those issues could have been managed by Elizabeth having the family meeting facilitated by a Family Enterprise Advisor. In using an FEA, the parties probably could have created a succession plan that was agreeable to all of them.
By not discussing the issues with her children, Elizabeth’s estate was spent on legal fees and her family probably will never speak to each other again (and at least two of them are not happy with the early Christmas present they received from the Supreme Court).
For more information about FEA’s, or to find a FEA to work with your family, go to https://family-enterprise-xchange.com.
If you have a question or issue that you would like to read about in future columns, please feel free to email me at firstname.lastname@example.org. If you want to revisit past columns, they are all online at www.yourfamilybusiness.ca.
Until next time.