Document reasons for treating children differently in your will
By AdvocateDaily.com Staff
Hiebert-Simkin, a partner with Tradition Law LLP, Estates and Trusts, explains that there are all kinds of reasons parents may not want to divide an estate equally between their children.
“Maybe one child pursued an advanced degree, all paid for by the parents, while another didn’t go to university at all,” she says. “One child may have a good job and be financially self-sufficient while another is not so successful, and moves back home, with room and board funded by mom and dad.”
“Whatever the reason, they are issues that should be discussed when the person plans their will,” Hiebert-Simkin adds.
Differential treatment doesn’t necessarily have to cause tension among siblings, especially when it is clear to all beneficiaries that each received contrasting levels of financial support during their parents’ lifetimes. But Hiebert-Simkin says testators may wish to address the difference in the will in order to reduce the chances of a costly challenge after their death.
“It might not matter to the other children, especially if they have done well themselves,” she says. “But it can also become a problem if someone has worked hard to become self-supporting and see their siblings as sponging off their parents.”
She says parents should consider formalizing loans to children in writing since these are often a source of dispute after their passing when children frequently claim that the loan was forgiven.
“Without any kind of paperwork, it creates headaches for executors,” Hiebert-Simkin says.
By having a child and his or her spouse sign a promissory note, she says parents can make it easier for everyone when it comes time to administer the estate.
“What I recommend is that the child pays a set amount every year so that it’s not subject to limitation of action issues,” Hiebert-Simkin says. “They can also sign an acknowledgement that if the loan is unpaid, it is to be considered an advance on that child’s share of the residue of the estate so that it can be taken into account and evened up.”
A similar approach can work for situations involving adult children who live at home and can’t or won’t contribute to the household expenses, she adds.
Special provisions are also needed for children with disabilities, especially if they are in receipt of government benefits, says Hiebert-Simkin. In most provinces, one option is a Henson Trust, in which money is held for the benefit of the child but under the complete control of the trustee, she says. As a result, the choice of trustee is an important decision.
“You might name one of your other children to be a trustee, but you should be sure they are comfortable being the keeper of their sibling’s financial life,” she says. “It can last decades, and some may be willing to take it on, but others may be resistant.”
A more conventional trust can also be a useful tool for parents with an adult child whose financial management or addiction problems lead to a fear their inheritance will be squandered. However, she says such an arrangement has its own downsides.
“Some children may resent the fact that they are not getting the money directly, which could cause a problem for the trustee or the executor of the estate,” Hiebert-Simkin says. “Sometimes you have to acknowledge that the child is an adult, and they are entitled to make their own decisions, even if they are bad ones.”
In some extreme situations, she says a parent may wish to disentitle a child altogether. This could be because the relationship between them has deteriorated, the parents may feel the child has taken advantage of them, or for many other reasons.
Whatever the explanation, Hiebert-Simkin says it’s important for testators to outline the reasons to the lawyer preparing the will, so that extensive notes can be kept on the issue, as it’s likely they will be needed should the disinherited child ever challenge the will. She says the information could be particularly important to the successful defence of an action in British Columbia, where succession laws are more friendly to will challenges from disappointed children.
“In some provinces, a parent who is competent to prepare a will can choose to disinherit a child who will not have much recourse unless they were financially dependent on the parent,” Hiebert-Simkin says. “But evidence of why the child was disinherited could still be useful.”
It’s not just wills where parents need to think about the financial support they give to their children. She says powers of attorney need to be worded carefully in cases where at the parent is financially supporting a child and they want the support to continue if they are mentally incapable.
“But it should always be subject to there being sufficient assets to look after the parent’s own needs, since meeting those are the attorney’s primary responsibility.”