Money not always at heart of estate disputes
As Canadians get set to witness the biggest inter-generational transfer of wealth to date, there is more at stake when it comes to estate disputes, says a recent CBC article.
The article notes that this transfer of wealth – from those born in the 1930s and '40s to baby boomers – could cause tensions between elderly parents and their children who expect to receive an inheritance.
While it’s likely that more money could correlate into more estate disputes, "the amount of money involved isn’t always the reason children fight over estates,” says Toronto estate lawyer Mary Wahbi, partner with Fogler Rubinoff LLP.
She says there is often a highly charged emotional component to estate disputes which could be a result of early family life, sibling rivalry, or grievances that have arisen later in life.
A BMO Investorline study quoted in the CBC article shows that the average inheritance in Canada is just under $100,000. More than 60 per cent of those surveyed believe they will receive an inheritance at some point in the future.
While the sheer amount of money at stake could trigger an increase in estate disputes, it could also be a function of demographics, Wahbi says.
“As the large baby boomer population goes through the aging and death of their parents, there are more and more people going through this transition so the number of disputes will also rise due to that,” she tells AdvocateDaily.com.
The CBC article also examines whether elderly parents should give their children an advance on their inheritance.
Wahbi says she is a strong proponent of not transferring wealth while a parent is still alive, ensuring that the parent has complete control and access to their assets for as long as they can.
“I have seen all too frequently a change from what was to be an inheritance, which is the privilege of receiving a gift on a parent’s death, turn into an expectation and an entitlement,” she says.
Often, parents will consider transferring wealth as a means to save on the probate fees, which are calculated based on the value of the estate at the time of death governed by the will.
In Ontario, the calculation is based on 0.5 per cent on the first $50,000 and 1.5 per cent on the balance of the estate, rounded up to the nearest thousand. Assets that do not have to be included are those devolving by way of beneficiary designation to a specific person (such as TFSAs, RRSPs, RRIFs, life insurance proceeds and pensions) or assets passing to a joint owner by right of survivorship.
Wahbi says by transferring some of that wealth now, the estate would be reduced and the probate fees would be lower. However, if a parent transfers wealth while they are still alive, they have given away assets that they may need to access for their own needs later on but will no longer have.
“I have had clients who have transferred their home into the names of their children, only to find that they are now restricted from selling the home or mortgaging it or worse, being kicked out of it, because they no longer own it. They now have to either get their children to agree to give them the asset back or to sue for it back,” she says. “That combined with a falling out in the relationship with the child has disastrous results for the parent.”
She says that loss of the assets is not the only problem – there may also be negative income tax repercussions to such transfers, including the triggering of immediate capital gains tax and the loss of part or all of the principal residence exemption on the home that would have otherwise been available on the death of the parent.
There are a number of alternative planning techniques to reduce probate fees while at the same time ensuring that the parent retains full control of the assets rather than gifting them to their children during their lifetime, says Wahbi.
“Some of these techniques include the use of bare trustee corporations to hold registered title to the property in conjunction with dual wills or the use of a joint spousal trust or an alter ego trust,” she says.
“At the end of the day, the savings of 1.5 per cent in probate fees is not worthwhile when the parent finds herself having to sue her child for the return of her home or assets.”