In the Spring of 2017, we blogged about the use of Alter Ego and Joint Partner trusts (‘Trust(s)”) for those over 65 as excellent estate planning tools. We mentioned that benefits range from probate savings to protection from wills variation litigation. A recent BC Supreme Court Decision has confirmed that when properly constructed and executed, Trusts are a strong defence against family litigation claims.
However, before we get to the decision, it may be useful to quickly summarize the benefits of a Trust.
Benefits of a Trust
There are 4 primary benefits:
- Privacy – a Trust is a private document, whereas a will is a public document.
- Probate fees – savings on probate fees of $14 of tax for each $1,000 of value. $10M of value saves $140K in probate fees. This can pay for a lot of legal and trustee fees.
- Tax treatment – The transfer of assets to this type of Trust is tax deferred and any gain in their fair market value is deferred until death (Alter ego) or second to die (Joint Partner).
- Litigation risk – Protection against family and other disputes. Done properly, there is nothing to argue about with regards to your will as you are – sarcastically – NSF. The Trust owns everything of value and your will has at best, your personal effects.
The case of Al Soucie
Al, a widower passed away in 2013 at the age of 78 with a significant estate. He and his wife raised three children in BC’s interior. Al also had a daughter from another relationship, Shirley. Shirley didn’t find out that Al was her dad until she was an adult, and even after, Al and Shirley were not close.
Al didn’t want any fights between his children. So, shortly after his wife’s death he engaged a seasoned trust and estate lawyer, Geoffrey White of Kelowna, to help him plan his affairs.
Geoffrey, through extensive discussions with Al and in-depth analysis of Al’s assets concluded that a Trust would best suit his needs. In effect, Al would transfer his assets to a Trust that Al would control throughout his life. On his demise, the Trust would contain provisions for the three children he raised. There would be no provision for Shirley.
Documents were drafted that included the Trust, bare trust agreements for land transferred to the Trust, etc. and then executed on October 18, 2018.
Al passed away 4 days later on his way to a long-planned vacation with a close friend. The three children soon engaged lawyers to deal with their father’s estate and the Trust. Shirley was not part of this process.
When Shirley found out about her father’s death, she ultimately commenced litigation to get Al’s will varied and to secure what she believed she was entitled to.
After a 9-day trial the judge concluded that Al had effectively transferred his assets to the Trust and the Trust and its terms were valid. Left in his estate was app. $6,000 in CPP, WCB and IOUC death benefits. Al passed away NSF – there was nothing for Shirley to argue about.
Where can it all go wrong?
A Trust can minimize litigation risk, but for the Trust to work as intended, the trustee(s) must take steps ensuring it is administered properly. As an example:
- Time to mature – Al’s Trust only had the benefit of 4 days. In our view, it’s best to have a Trust in place for several years
- Have a separate bank account for the Trust – often a Trust account is set up and then ignored. Don’t use a personal bank account to deposit funds and pay bills ignoring the Trust’s account.
- Have quarterly or annual meetings of the Trust’s trustee(s) with minutes prepared and signed. These meetings should deal with the Trust’s income and capital distributions, expenses of the Trust, etc.
- And finally – consider independence. An independent trustee can help ensure that the Trust is administered properly and that its intended objectives are met.
As Al (and Geoff) proved, Trusts are an excellent estate planning tool if properly planned, executed and administered. The price of doing it right pales in comparison to the cost of not. As Red Adair said:
“If you think it’s expensive to hire a professional to do the job, wait until you hire an amateur.”