Real estate boom is feeding family legal disputes

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The boom in real estate values in Vancouver has brought with it a rise in family real estate disputes.

There was the well-publicized story last November of the legal fight over a Point Grey estate. The owner had written in her will that the British Columbia Society for the Prevention of Cruelty to Animals was to receive any money that remained after assets of her estate had been liquidated and expenses and distributions paid out. But that will was written in 2003, when property values were much lower than today. Now, those leftover assets would amount to more than $1.5-million. The owner had left her relatives a generous sum, but she couldn’t have expected the value of her house to increase as much as it did.

In the world of B.C. estate law, emotions are rising along with elderly relatives’ property values. As a result, estate litigation lawyers are working overtime, and the solicitors who write wills are warning homeowners to take extra measures to lessen the chance of future disputes among relatives.

Litigator Josh Woods says he’s not just dealing with disputes after a homeowner dies; he’s fielding calls from people who want to know if they stand to gain anything if they try to contest a will. The calls have increased during the pandemic.

“I’d say my phone is probably ringing three times as often in a given month than it was three years ago, and that’s just myself personally,” he says.

Now he gets more calls from people who, for example, inherited only 40 per cent of a property, and they want to make a claim for half because the asset is worth so much.

“They are leaving no stone unturned. And given the amounts that we’re talking about, that’s not surprising,” he says. “Previously, the value of the assets may not have justified a full-on legal battle. … But all of a sudden that family house mom and dad bought back in the 1970s? Well, they bought it for $60,000 – and now it’s worth $3-million.”

The stakes are so high they are life changing, Mr. Woods says, and the disputes often involve children battling it out over a parent’s estate.

“And the truth is, we do have an aging population, and that may be part of it. I certainly have seen a lot of children fighting recently, there’s no doubt about it.”

Realtor Ian Watt recently represented a buyer who made an offer on a house that was owned by an elderly lady who’d just moved into a care home. The children had listed her Vancouver home, but after several weeks weren’t getting any offers. Mr. Watt’s client made an offer about 10 per cent below asking and despite not receiving any other offer, the sellers pushed back for more money. The buyer held firm.

“It’s always the person that doesn’t live here who wants more,” Mr. Watt says of such disputes. “They’ve seen the news. And if you live in a small community, an extra $50,000 is huge money. Every dollar counts.”

When there are several family members involved, and a lack of a proper will, the cases can drag on for years. Several properties owned by Eric Pierce in Kitsilano including his home at 2850 W. 3rd Ave., which he gifted to the city for community use, were tied up in litigation because Mr. Pierce hadn’t documented his wishes in detail. Mr. Pierce died in 2011 and the city didn’t obtain the house donation until 2016.

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Lawyers hear about all kinds of cringe-inducing scenarios, says Mr. Woods, such as the two siblings who missed a parent’s funeral because no one told them about it.

“They come to me on what has to be one of the worst days of their life,” he says. “A house burned down without insurance coverage, or somebody failed to complete on a contractual purchase on real property – or they found out they were cut out of a will that they didn’t know existed.

“The feelings are very much on the front burner.”

The legal landscape is also getting more complicated, because parents are increasingly gifting children down payments as part of an early estate distribution, says lawyer Richard Bell. Parents are also putting kids on title as joint tenants to avoid the probate process and fees. In Canada, Mr. Bell says, there are no inheritance taxes, so that’s not the concern. Once the parent dies, the general idea is that the property is then distributed fairly among the children. The child on title would sign a document indicating that they are merely holding the property in trust for the estate.

If the parent wants the child to have a true joint tenancy and inherit the property, then that needs to be documented, says Mr. Bell, who has more than 30 years of wills and estate planning experience.

It can get tricky. There’s an area of law that concerns duress and undue influence over a parent, which could come into play.

“We see basically good people not understanding the subtle influence they could have because they are living near the parent and the other siblings are far away. There is a fine line that they could easily cross over,” Mr. Bell says.

He has personal experience of the increasing need for complex legal arrangements due to the high cost of real estate, having turned his own house into a family compound. He converted the Vancouver detached house into a duplex for himself, his mother, his daughter and son-in-law and two grandkids. He also added a laneway house for his other daughter and a renter. Mr. Bell sits on the board of the non-profit Small Housing B.C., which lobbies for improved types of densification within so-called single-family zones.

“The one thing I know for sure is there are a lot more lawyers going into estate litigation than ever before … which is a clear indication of the fact that there are increasing disputes,” Mr. Bell says. “And also, you have to look at in the context of an aging population and real estate properties that have increased significantly in value.”

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He is seeing an increase in early distributions, also known as “the bank of mom and dad.” But when a parent wants to advance their child money from the inheritance, he asks them a key question: “What happens if you live to be 100 and the last 10 years of your life cost $120,000 a year worth of care? We’ve seen scenarios where someone does give money, and then the money is needed and the kids aren’t in a position to give the money back.”

There are other situations where an early distribution makes sense, such as when a parent sells the property to go into assisted living and they can safely project costs for the next decade, and they will still have $2-million left over, for example.

As well, there are issues of fairness around helping one child buy property. When a parent gifts one child a down payment, or a property before they die, a lawyer will take that gift into account when writing the will. If the gift was given many years ago, it’s possible to calculate its worth in today’s dollars, in order to assess the value of the gift and make distribution fair. He says it’s called a hotchpot clause.

“We provide for an adjustment on death, so that they equalize the gift to their children, and for most families that is what they want to do.”

For example, a parent gives a child $200,000 as a down payment and dies before helping the other children. So there’s an adjustment made to the will, and it’s based on the consumer price index, to reflect current dollars. That $200,000 may now be worth $250,000, for example. The distribution to the children is adjusted accordingly.

There might be a good reason why a parent would leave more to one child than another, but there is also a provision within the legislation that protects against unfair treatment.

“You have to be careful around treating your kids differently because you have got this Wills Variation section of our legislation that says a child that has been unfairly treated can have a claim against the estate. And given that the estates are so big now, if one sibling gets 70 per cent and the other 30 per cent the person getting 30 per cent may perceive that they’ve been unfairly treated.

“And there may be good reasons why a parent has done that, but at least that’s what’s triggering the argument. It could be fought.”

Mr. Woods sees the potential for a lot more litigation as a result of disputes around property. Thanks to escalating property values, it’s a very good time to be an estate litigator.

“These lifetime gifts, I think they are becoming more common and I think it’s something that could lead potentially to more litigation down the road,” Mr. Woods says. “I’m booking into 2024 for some dates, so when I say that I expect it to come full circle, I wouldn’t be surprised that in five, 10, or 15 years, we see even more [disputes], not only because housing prices are going up but because of those kinds of gifts, such as [when] you get help from mom and dad as co-signer with the down payment.

“As the baby boomer generation ages, there will be a real bulge in these assets. And these assets are not trivial. We are not talking about a $100,000 lake cabin eight hours from the nearest metropolis. We are talking about properties here in the Lower Mainland, all of which are skyrocketing in value.”

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