Skip to main content

High-net-worth families often want to leave a legacy to their loved ones. What they rarely consider, however, is that children and extended relatives might squabble over their estate.

John, a business consultant in Ontario who requested anonymity given the sensitive nature of the topic, found himself in the middle of a family feud when his mother passed away a decade ago. Despite the existence of a will that divided the assets of the multimillion-dollar estate equally, infighting began.

“One of the members of our family had signing authority over one of her bank accounts that had a sizable amount of money, which they withdrew” after her death, John recalls. “It caused a lot of bad feelings within the family.” The draining of the account had been encouraged by the spouse of one of the children, he says.

The rift continues to this day, with some family members refusing to speak to others. “Our parents would be devastated if they knew this,” he laments. “That in itself is pretty upsetting.”

John’s story is a familiar one to estate planners, lawyers and accountants who help wealthy clients formulate succession plans.

With Canadian baby boomers set to bequeath an estimated $750-billion by 2026, according to a recent CIBC Capital Markets report, these situations are likely to become more common.

The good news is that keeping the peace among heirs is possible through accounting and legal planning, effective communication and transparency. But it’s the legal part that can trip up even the most sophisticated and organized high-net-worth benefactors.

Many families discover too late that a parent’s will is deficient in key areas, says Stuart Peikes, a partner who specializes in estate planning and administration at the Toronto law firm Clark Farb Fiksel LLP.

“Anyone can draft a will, but you need to hire good professional advisors,” he says. “There is not an area of law, accounting or financial planning where there are shortcuts that people can take in exchange for paying for good advice.”

An Angus Reid survey from earlier this year sheds light on just how ill-prepared most Canadians are. It found that just 51 per cent of Canadians have a last will and testament in place, and 35 per cent of will-holders admit their will is out of date. Wealthier people are slightly better prepared, with 55 per cent of those earning more than $100,000 reporting they have a will, compared with 44 per cent of Canadians who earn less than $50,000 a year.

For wealthy individuals – whose assets might include homes, businesses, art, jewellery, cottages and other valuable items – drafting and regularly updating a will is a critical first step, according to Mr. Peikes.

One key, and oft-overlooked, consideration when drafting a will, particularly when the estate is sizable, is differentiating between fairness and equity in the division of assets, he says. This is where conflicts tend to arise between children, leading to costly and stressful litigation.

Why? In many cases benefactors will look to divide assets equally among their children. But their offspring might argue that because one sibling was once given money to help with a downpayment on a home, for example, or to start a business, he or she should be given a smaller share of the final estate.

This problem has been exacerbated as baby boomers live longer and require added care, often delivered by one of their children, says Thomas Deans, the Orangeville, Ont., author of the estate-planning book Willing Wisdom.

“There tends to be one family member stepping up and providing care,” Mr. Deans explains. “Then there’s a tendency later in life to amend a will and leave more to the primary caregiver. The rest of the family goes apoplectic after their family member has died.”

To prevent such an outcome, Mr. Deans recommends organizing a formal family meeting – with all beneficiaries present – at which a trusted advisor outlines a benefactor’s estate plans, wishes and instructions for the transfer of their wealth.

“Secrets around the division of assets seldom lead to great dynastic families,” Mr. Deans says. “Families that have been able to successfully transition wealth bring structure and predictability to [the process].”

That’s especially important if the family owns a business. One nightmare scenario he often sees is the result of parents equally distributing family business assets to their children even if they are not actively involved in the company’s operation. Children end up sharing ownership and management duties, and the inevitable sibling or family rivalries result.

Instead, he recommends inserting clauses into a will that release cash from the estate to beneficiaries but also offer the ability to buy back shares in the business if they choose.

Businesses that have appreciated in value over time also can cause accounting headaches.

Henry Villanueva, a lawyer with MacMillan Estate Planning Corp. in Calgary, explains that upon a benefactor’s death, their estate is deemed liquidated for tax purposes, thereby exposing it to capital-gains tax. Families are often sideswiped when they realize that the estate lacks the cash to pay those often hefty bills.

Families are then sometimes forced to decide which assets to sell, and that sets the stage for even more infighting.

“Many affluent clients do have the money to pay, but we also have clients who are land-rich and cash-poor,” he says. “Taxes, particularly how much they are and where the money will come from, are always an issue.”

Probate taxes are another major challenge, Mr. Villanueva says, though he’s quick to point out that smart tax and estate planning can help mitigate the taxman’s take and limit the time an estate lingers in probate. Insurance policies can help shelter wealth from taxes, and employing designated beneficiaries can help bypass the probate process.

In the case of John, the Ontario consultant, family fighting has influenced his own approach to estate planning.

He says that he will avoid a similar situation by requiring two designated signatories for any bank account, preferably a lawyer and a family member. He also now sees the value of putting estate-planning firewalls in place to ensure the deceased’s wishes are followed to the letter.

“Even though you think you can trust [the will and estate plan] that you’ve left behind,” he says, “you never know what happens when someone else steps in.”

Interact with The Globe