Estate dispute – Page 2

You only die once – Choose your executor wisely

Back when I ran my estate law practice, clients often asked me, “Who do you think should be my executor?” My response was never to name names, but rather to suggest principles that might guide the decision process.

Principle number one: your executor must be someone you trust. After all, the nominee will not only execute your will instructions, but as trustee will become legal owner of everything you own at the point when you graduate to the great beyond.

At the same time, there should be adequate controls in place. In other words, you should not trust your trustee absolutely. Here’s a painful example illustrating why.

A $24-million estate devolves

Unless you are in the mining industry, you may not recognize the name Paul Penna. Born in 1922, he was a bucket-shop mining stock promoter and millionaire by the time he was 24, and went broke shortly thereafter. By 1972 his respectability and fortunes had risen once more, such that he was able to merge two mining companies into Agnico-Eagle Mines.

At the time of his death in 1996, he had an empire and fortune worth about $24 million — more than adequate, one would think, to fund a life estate for his wife Lorraine, and a charitable trust to boot.

The estate executors were two of Mr. Penna’s business colleagues and Lorraine herself. After Lorraine died in 2003, Mr. Penna’s nephew took her place in 2004.

A $24-million estate dissolves

By early 2005, a Mareva injunction had been ordered, freezing the assets of Barry Landen, one of the two business colleagues named as estate executors. A 2006 order replaced all three trustees with a court-ordered trustee.

According to the judge who oversaw the matter for much of the five and a half years it was before the court, “The Estate was neither properly nor honestly administered from the outset. The executors and trustees never probated the deceased’s will. Landen completely controlled all of the administration, including banking and cheque-writing. He never followed the terms of the will.”

Lorraine was entitled to a $1-million specific legacy in addition to payments as part of the life estate. She received neither. Instead, funds were fraudulently converted to Landen’s use, including:

A $2-million Forest Hill home purchased with estate funds, and registered to his wife
Four luxury car leases and season tickets for the Toronto Maple Leafs and Toronto Raptors
Over $2-million of itemized misappropriations or misdirections
Many millions of dollars more that remain unaccounted for

While Landen was the principal actor, the judge commented that had the co-trustees properly taken on the role entrusted to them, Landen could not have committed such a massive fraud over so many years. Eventually, the other two executors paid settlements to the estate.

In October 2010, Mr. Landen was found in contempt of court for breaching four court orders, and a sanction/punishment hearing occurred in November 2010.

An executor called to answer

Contempt of court attracts a range of possible sanctions, from orders to act or refrain from acting, to payment of court costs or fines, all the way to the potential for imprisonment.

Owing to Landen’s latent pennilessness, the judge ruled a fine to be pointless, and that there could be no positive act he could perform to purge his contempt. So, it’s prison for Landen — specifically, 14 months.

What’s more, there is no parole provision in civil contempt matters, so it will be a full 14 months. After that, the order requires him to appear before the court once more to account for what he did with the balance of the estate assets. Presumably, a failure to respond to that order could lead to a further finding of contempt, so this may not be over yet.

So, who do you think should be your executor?

Misadventures and myth-adventures in naming beneficiaries

The act of beneficiary designation is a microcosm of estate planning. With the stroke of a pen or a few taps on a keyboard, this final step in the life insurance contract cycle is completed.

And there’s the myth –

Never believe that the act of naming a beneficiary is complete just because boxes have been filled, forms filed and contracts issued. One would think that certainty is assured if all these steps have been carried out correctly, but that’s simply not the case.

At best one can assert that compliance with technical rules fulfills professional responsibilities and creates reasonable expectations in most circumstances. Like broader estate planning, however, policy payout may end up being played out against a backdrop of conflicting personalities, competing priorities and contradictory contentions.

This fragility is perhaps most clearly brought to light in the intersection of insurance contracts and matrimonial law. Here is where that microcosm of estate planning comes into the sharpest focus in the form of estate litigation.

Life altering fortunes are on the line, emotions rule, and fates are placed in the hands of a judge working with often imperfect information. And sometimes there are imperfect results, especially if you’re on the short end of the gavel, so to speak.

Here are two recent cases that help illustrate the challenges that can arise where conflicting language and actions impact upon the distribution of life insurance proceeds.

RBC Life v. Monaco, 2010 ONSC 75

In the province of Ontario, as with most common law provinces, a beneficiary change form need not be in any specific form to be valid. As well, only irrevocable beneficiary designations need to be filed with an insurer to be valid, at least with respect to the irrevocability. Consent of any existing irrevocable beneficiary would also be required. The only requirement for non-irrevocable designations is that they be in writing.

Paolo Monaco named his brother as beneficiary on life insurance arranged in 2003, just after commencing a common law relationship with a woman who had a young son. The insurance agent was a friend of a friend of the common law spouse. Paolo died in a motor vehicle accident in 2007.

Following death, the insurance agency requested by email that RBC Life change the beneficiary, but did not initially advise of the death. The form eventually faxed in showed an execution date in 2005 in favour of the common law spouse’s son (in trust), but the policy number was transposed with the common law spouse’s own policy. In fact, the original change form was never found; only a photocopy was ever produced.

As executor of the estate, Paulo’s brother alleged that the produced form was a forgery, and he would have the onus to prove so on a balance of probabilities.

The judge remarks on the dilemma of validating a photocopy, the untimely filing, and the weak testimony of most of the witnesses. He was notably pointed in stating that the insurance agent’s evidence was “not very impressive” and that his “evidence as to the chronology of events was lacking.” In the competition between handwriting experts, however, the judge favoured the evidence upholding the form, and therefore the alleged fraud was unproven.

At the very least, there is a lesson buried in there with respect to proper record-keeping and conscientious follow-up.

Elton v. Elton Estate, 2010 NLCA 2

It is generally possible, at least in the common law provinces, to uses one’s Will as a written instrument to make or change beneficiary designations on life insurance contracts. To do so, the relevant insurance policy must be in place prior to the execution of the Will, and such policy must be clearly identified.

In Elton, the Newfoundland Court of Appeal accepted that the provision in Brian Elton’s Will adequately identified a number of life insurance policies totaling $1.75 million naming his wife Kathryn as beneficiary. The Will provision refers to transferring to her “proceeds of life insurance policies already naming her beneficiary and any additional insurance monies necessary to provide her with a total of $450,000.00.”

The issue before the court was whether the Will phrasing revoked the designations and capped Kathryn’s entitlement to $450,000, or if she was entitled to this dollar amount in addition to the direct designation proceeds. As a further ingredient in the mix, the Will provision incorporated a domestic contract by reference. Sadly, the day after he executed the Will, Brian Elton took his own life.

Whereas the trial judge found in favour of Kathryn, on appeal the decision was reversed and her entitlement was capped at $450,000.

Of particular interest and instruction for financial advisors is the following statement from the appeal court summarizing the trend in interpretation from the bench in such cases: “It would be incorrect to state that the Life Insurance Act or its requirements must be strictly interpreted as that would be contrary to established principles of statutory interpretation.”

The simple lesson

Despite the black letter of law in legislation and regulation, especially as evidenced by the statement in Elton, it seems there will always be a degree of grey when it comes to naming life insurance beneficiaries.

What’s in a word? Literally everything if it’s a beneficiary designation

Jeffrey Brittain “was involved in the insurance business from which he had amassed considerable wealth. He lived on a working farm in Princeton, Ontario with his son in a house which he shared with his elderly mother.”

But this isn’t so much a story of one of our successful brethren in the wealth field as it is a sobering reminder that the best of intentions may be worth squat if not put into writing.

You see the reason the details of Mr. Brittain’s life appear within quotation marks is that these are the opening words of the judgment in an estate dispute over his $1.75 million RRSP.

The live-in couple

Jeffrey Brittain was just 53 years old when he was killed in a farming accident in the spring of 2002. He had been married twice before and had upcoming summer plans to marry his live-in partner Lora Belvedere.

There was no pending wedding proposal or promise of an RRSP, however, when the couple met in 2000 and began living together at the Princeton farm in June of that year. Those facts would bear consideration in Ms. Belvedere’s later claim to the RRSP proceeds.

Mr. Brittain appears to have been a practical thinker – some might say a pessimist – in terms of the sustainability of relationships. He had held a cohabitation agreement with his second wife, and within a couple of months of living with Ms. Belvedere had suggested a similar arrangement. In fact, during a social visit with the mutual friends who had introduced the two, Mr. Brittain produced a photocopy of that earlier document with some proposed amendments penciled-in.

The terms evolved to include a commitment that she was to be beneficiary of his RRSP holdings if the two were still together at his death, and a support amount for Ms. Belvedere should the couple separate before then. Upon further exchange and reflection, the decision was made that he would attend upon his lawyer to produce a fresh document, rather than their signing the marked-up discussion piece.

Best of intentions

The execution of the cohabitation agreement was to be the first in a sequence of events, including a revised Will to confirm the support commitment, and of course beneficiary change forms to be filed with the various RRSP suppliers.

Unfortunately for Ms. Belvedere, these steps had not been completed by the time Mr. Brittain met his untimely death about 18 months later. In particular, the RRSP beneficiaries remained as before, so all that was left to her were notes and oral expressions of intention.

Mr. Brittain had not been entirely idle, however. He had indeed revised his Will, principally to make his son the primary beneficiary, and had also removed Ms. Belvedere as beneficiary of his $100K group life insurance. She was aware of both these actions.

In addition, Mr. Britttain had referred to an earlier Will in notes provided to his estate planner in early 2002, leading the trial judge to note: “All of this makes it extremely hard to determine Brittain’s true intent even if able to determine what he said he intended.”

Get it in writing

Without the explicit RRSP beneficiary change, therefore, Ms. Belvedere would need to lodge her claim against the estate on the basis that Mr. Brittain had been unjustly enriched. She sold her house and car, extended her health care and employment perks to him and his son, provided her household labour and limited her outside career workload … and the claim succeeded, at least at trial.

On appeal, the court held that the facts did not sufficiently fit within the legal test for unjust enrichment. Whatever enrichment Mr. Brittain received and corresponding deprivation Ms. Belvedere suffered, it did not entitle her to claim against the estate for any amount, let alone $1.75 million.

In that light, consider that had the beneficiary change forms been completed, she would have received the full RRSP proceeds directly. For the sake of a recorded word or two, it was effectively an all-or-nothing proposition.

Perhaps obviously, the lesson for individuals generally – and for advisors of all stripes – is that beneficiary designations are very powerful tools that should be wisely considered, expeditiously filed and conscientiously monitored.

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Curiosity — Other recent cases of unchanged beneficiaries:

Gaudio 2005 – Separation agreement had general mutual estate releases, but wife successfully claimed both group life insurance and RRSP as husband failed to change recorded beneficiary with the respective suppliers.

Conway 2006 – Despite separation agreement, wife successfully claimed as the recorded beneficiary under group life insurance, but was denied a pension benefit as the equalization payment from her husband had explicitly taken pension value into account.

Richardson 2009 – Wife claims insurance despite separation agreement limiting her entitlement to a specific date; designation remained unchanged for 12 years longer than agreed, including premiums being paid by second wife believing she was beneficiary.