Disaster on the Back of a Napkin
Before diving into the topic of this month’s newsletter, I wanted to pass along a few other tidbits. First, I have two webinars coming up rather quickly. First, I am presenting at the World Money Show in Toronto this Saturday at 1:45 local time (10:45 in the fair place I call home), although this will be available via webinar. If you want to learn a little bit about how trusts work and hear of a few examples of their uses, then load up on the latte and tune in via the following link: http://www.worldmoneyshowtoronto.com/special-events.asp?specialtype=cm If you aren’t able to attend or this doesn’t get circulated before then, I suspect a recording will soon be available and I will try to link it to my website
Secondly, I have my own webinar on Saturday, November 21 at 10 am PST entitled, “Ten (more or less) Tax Saving Tips”. I’ll talk about a variety of things both simple and more complicated that people can do to keep more of their green without running afoul of the law. http://www.canadianmoneysaver.ca/events
Thirdly, I am starting up my own work face book page and plan on sharing a variety of links to other articles I’ve found along the way and other useful bits of info. If you get a chance, please take a second to visit and “like” it so that others will have a greater chance of stumbling upon its myriad secrets and wonders going forward: https://www.facebook.com/colinsritchielawyer
Finally, as a reward for making this far, here is one tax planning tip to consider over the next couple months. The newly elected liberal elected government campaigned on a tax cut for the middle class and a new tax bracket for those earning more than $200,000. I would expect these changes to be implemented for the 2016 tax year. Noting this, if you’re going to be subject to this new tax bracket, you might look at realizing more capital gains or pulling more money out of your companies this year if this was money that would have been subject to the new rate for high income earners next year. These impending changes also increase the rewards for those of us who take the time to income split. Not only can careful tax planners avoid the new tax bracket; if the people they are splitting with benefit from the tax cuts for the middle class then tax planning can become even more advantageous than under the current rules.
Those of you who have slogged through a few of my previous articles, have a background in either the legal or financial planning world, or just happen to remember “stuff” may recall that there were enormous changes to the law surrounding Wills and Estates in 2014. If not, I suggest visiting my website and searching through my archive of articles to get up to speed. Perhaps the most contentious change – certainly one not predicted or sought by the legal community – was the legalization of the so-called Napkin Will. As a result of s.58 of Wills, Estates and Succession Act, virtually any kind of recorded wishes can now be accepted by a court as your last Will and Testament. Theoretically, not only a scrawl on the back of a piece of paper normally used to wipe your face can supersede the 30 page masterpiece I or another lawyer carefully construct on your behalf, perhaps so can notes written on your current Will, emails, texts or perhaps even a voice recording or video clip posted on u-tube.
What’s the problem with this, you may ask? True, this relaxation of the overly-rigorous rules that must be scrupulously obeyed in order for a traditional Will to be deemed valid does have its merits, particularly in the case of people who never got around to finalizing their testamentary wishes when they suddenly understand that their time on this world is coming to an extremely abrupt close or inadvertently forget to dot a “t” or cross an “i”.
It is true that there are rules in place for who gets what when you die without a Will to protect procrastinators but they are often not what many people would choose if they got around to writing down their wishes. For example, most married couples with young children want their estates to go exclusively to the surviving spouse. Instead, current B.C. law calls for the surviving to get only the first $300,000 ($150,000 in a blended family) and 50% of the balance, with the kids dividing the rest. Even worse, the kids’ portion would probably end up managed by the Public Trustee until the kids turned 19, at which time they would receive a cheque for what’s left and carte blanche. In a situation such as this, a brief note indicating that it all goes to the spouse would probably be a much better result for the family, despite all of the other problems and needless expenses that would still arise from not having a proper Will in place.
Unfortunately, as we’ve been known to do in B.C., we may have taken things one step too far. Rather than perhaps allowing holograph Wills (i.e. Wills written in the hand of the deceased that haven’t been formally witnessed), as are accepted in some other provinces such as Alberta, we have opened the door to what I suggest are a new wave of lawsuits, shenanigans and confusion that will cause far more problems than it solves. The only real winner may be the trial lawyers paid to argue these cases. Not only are they already the benefactors of the most liberal Will challenge laws in Canada (only here can adult millionaire children challenge Wills merely because they don’t think they are fair) – the new relaxation in formal Will requirements might ultimately end up feathering many a legal nest as various disgruntled heirs turn up with sundry scribbles, emails and other recordings they allege supersede the formal Will the deceased had so carefully prepared.
It is true that some other corners of the world have similar laws in place and the law regarding whether such a recording should be accepted as a valid Will seems to require three things, (although we are still not clear on how this will play out on the West Coast): that the document is recorded, it is authentic and that the court is satisfied that the deceased solemnly intended it to determine who gets what at his death. I would suspect the biggest fights will revolve around the latter two requirements, particularly when the wishes are expressed in email or via text rather than in the deceased’s own hand and it becomes difficult to establish who punched in the keystrokes. Of course, even if written in the dearly beloved’s familiar scrawl, who is to say that it wasn’t written under duress or perhaps under the influence of a few scotches too many rather than a manifestation of what is known in legalese as deceased’s “testamentary wishes”? One of the benefits of a formal Will executed in front of a lawyer is that your legal beagle is an impartial witness who can not only establish that you were the one who signed the document but that you knew what you were doing, were doing it of your own free will and that you’d had plenty of time to think about it in advance.
Perhaps, just as importantly, even if actually written by the deceased when not under the influence of Glenmorangie or an unscrupulous caregiver, how do we know that these were the deceased’s final wishes rather than just preliminary thoughts or perhaps someone else’s ideas they were jotting down to consider further? I’ve had many clients come into my office with a general idea of what they’d like to happen on their death that gets changed several times before they scrawl their signatures above their names. Moreover, in the case of several such documents, how are we able to really know which was the most current?
In any event, in the end, debating whether Napkin Wills are a change for the better or a recipe for disaster is ultimately beside the point. Since it is now the law of the land, I want to spend these last few paragraphs discussing how to work within the new rules to either avoid inadvertently leaving your entire estate to the Pirate Party in a moment of pique or, if you really need or want to go the informal route, to increase the chances that the court will heed your wishes.
To begin, for those of you terrified by the thought of giving your disgruntled family another avenue to challenge your final wishes, here are a few things you can do to minimize the chances:
- Destroy any emails, texts, notes or other documents that could be construed as Will replacements and be careful about creating any future such documents;
- If you need to write down ideas for changes to your Will, be sure that any such documents include language like “preliminary thoughts,” “for “discussion purposes only” or even something more specific like “the thoughts on this page are not intended to express my final wishes on death but are preliminary thoughts only”;
- Date all documents so that it clear that your preliminary notes were prepared before you sign your official Will;
- Either avoid making handwritten corrections to your current Will if you are considering changes or be sure to make the document as indicated in the second most recent bullet.
- Consider adding language to your next Will indicating that you are aware of the new law, that you won’t replace a formal Will with any informal document except under extraordinary circumstances and, in the unlikely event this ever becomes necessary, any such document will be clearly dated, specifically revoke any prior Wills and confirm that this new document expresses your final wishes for disposing of your property at death;
In contrast, although I always recommend getting proper legal advice in order to ensure that your Will best satisfies your wishes as cheaply, quickly and conflict-free as possible, if this isn’t possible, then I suggest taking the following steps if you can’t go the formal route, most of which are what you’d take if you were getting a Will done through a lawyer:
- Clearly indicate that you intend for this document to be your final Will and testament and that you revoke all other Wills;
- Date this document so it is clear when it was prepared in case there is any debate as to which document expresses your final wishes;
- Try to get this document witnessed and signed by at least two adults who aren’t named in the Will in any way so its authenticity can be established, as can your mental capacity and the fact that you weren’t writing it under duress. If they weren’t around when the document was prepared or signed, then at least confirm it in their presence;
- Write this document in your own hand, particularly if you can’t find anyone to witness it, or at least sign it;
- Be careful of crossed-out amendments to this document, particularly if not witnessed;
- Confine it to as few pages as possible, initial and number each page so that you minimize the worries that someone may have replaced, added or removed a page; and
- Make sure that you leave this where it can be found. If you are worried about it being destroyed by someone who might find it and disagree with its contents, leave it with someone else.
Although the preceding points are a template for those of you tempted to do it yourself in order to save a few dollar, don’t be misled. In reality, most homemade Wills will cost your heirs a lot more than what you’d pay to get a lawyer to prepare your Will. Homemade Wills will probably require a lot more scrutiny (i.e. higher legal costs) by the court before being accepted and they will probably create a bunch of additional problems by not fully addressing the issues that a properly prepared Will covers off or do so in a way that is open to multiple interpretations. Even worse, do-it-yourself Will often produce unintended results, like people getting less than you envisioned after income taxes are applied or the Public Trustee having to manage assets for minor heirs!
In the end, we are entering a new era in the age of Wills. For some of us that haven’t done a Will but have time to jot down a few words when on death’s door, the dawn of the Napkin Will might be a very good thing. On the other hand, besides encouraging more people to do this themselves, which I believe is as bad an idea as wearing plaids with stripes, the new rules will result in uncertainty, more legal challenges and complications. Not only will executors need to comb through the deceased’s notes, emails and computer files looking for documents that could possibly supersede the formal Will; angry heirs can use this new latitude as a way to combat your true wishes. Certainly, it is far easier to forge an email than a Will prepared in the official manner.
Regardless of whether or not this is a good thing or not, it is what it is. Hopefully the suggestions above will help you avoid these sort of problems when someone has to comb through your personal effects after you have gone to a place where no one has to pay income tax.