Have you read over your last will and testament recently? Do you even know where your will is today? I'll assume you have some idea where to find it. The question is this: Is your will consistent with things you've said and done, and with other documents you might have prepared or signed? Are you real intentions clear to your loved ones, or will there be some confusion after you're gone? For too many Canadians, their estate intentions aren't very clear. Today I want to share a story that provides an example of what I'm talking about. It's the story of a court decision called the Morrison Estate, and we can all learn from it.
In the Morrison case, John Morrison passed away five years ago and was survived by his children, whom I will call A, B, C and D. At the time of his death, Mr. Morrison's estate was largely made up of his registered retirement income fund (RRIF). In his will, he specified that his estate should be divided equally among his children, but that $11,000 should be left equally to his 11 grandchildren. So far, so good. But things took a sour turn.
When children A and B, who were joint executors, started looking at their father's estate, they realized that child A had been named as the sole beneficiary of Mr. Morrison's RRIF. The problem? The assets of the RRIF were to end up with child A, but the tax bill resulting from Mr. Morrison's death fell on his estate. The tax bill was high enough that there was no money left to make the gifts to the grandchildren.
Child C then stepped in and wanted the court to declare that the RRIF proceeds actually belonged to the estate and that child A was simply holding those assets in a "resulting trust" for the estate. Then, the RRIF assets would be split equally among the children under the terms of the will. The argument was that there was no indication that Mr. Morrison intended a gift of the RRIF assets to child A alone, and there was no agreement between Mr. Morrison and child A that would have seen child A designated the sole beneficiary.
Justice R.A. Graesser of the Alberta Court of Queen's Bench found himself in a tough spot. Although he believed it was unfair that the grandchildren would be deprived of their modest bequests, a beneficiary designation of a RRIF should carry some weight. Unlike a similar court case (Pecore v. Pecore) where a child was named as the joint owner on a father's bank account (and therefore claimed ownership of that account when her father died, much to the chagrin of her husband who was also a beneficiary of the estate and who wanted half of the joint bank account when their marriage broke down), we're dealing with a beneficiary designation here that is not the same as joint ownership. "In the absence of evidence to the contrary, it should be presumed that [Mr. Morrison] knew what he was doing," the judge said.
Yet, in the end, the judge handed down a decision that saw child A being required to reimburse the estate for the tax it paid in connection with the RRIF. Rather than ruling that the RRIF assets belonged to the estate (and overturning the RRIF beneficiary designation), the judge adopted an approach allowed under the Alberta Judicature Act, which gives the court a generic and broad power to remedy unfair situations. And so, child A had to make the estate whole for the taxes owing on the RRIF. Problem solved. But at what cost? Perhaps damaged relationships in the family.
The battle that took place in this case happened because Mr. Morrison's intentions weren't clear. On the one hand, he named all his kids as equal beneficiaries in his will, but on the other hand he named child A as the sole beneficiary of his RRIF. These are conflicting messages. What can be learned here? Make your intentions clear by discussing your estate planning with all of your kids present. Even better, put your intentions in writing. And please get tax advice. It seems as though Mr. Morrison didn't understand that his estate would owe the tax bill on the RRIF while child A would have the RRIF assets. He probably didn't intend for that result to happen.
Tim Cestnick is managing director of Advanced Wealth Planning, Scotia Wealth Management, and founder of WaterStreet Family Offices.