Normally at year end, I like to tell the story of a real person – often we make it someone with a lot of personality or character who has done something unique and amazing with their estate. I’ve spent the year debating what story I should tell. And then, perhaps with a bit of holiday magic, the universe provided me with a great story – but written by someone else!
In mid-November, no less than three readers of this newsletter all forwarded me the exact same CBC news article. While it isn’t uncommon for me to have readers forward me interesting articles, this is the first time that I can remember multiple people sending me the same article. But when I opened that link…boy oh boy is this a juicy case! It certainly made for a sensational headline. A retired financial advisor in Alberta has passed away, and left $40 million to a charity in his will. According to his widow, he wanted to change his will, to spread his wealth to several other charities, but his ailing health and pandemic restrictions left him unable to do so. She is accusing the named benefitting charity of not allow this change to happen. It is clear from the article that she hopes a media campaign against the charity will convince them to back down. She has also created a public website, and has included court documents including posting her affidavit, her husband’s lawyer’s affidavit, and a copy of her husbands will, executed in 2019.
The CBC reporter who wrote this article has, in my opinion, done a very good job on providing a number of important details about the case. There’s an enormous amount we can all learn from this case. In order to respect the Family, and the Charity, I’m not going to post a link to the article, or use the family name or charity name. I’m sure you will be able to find the article easily enough.
Full disclosure: I’m not a lawyer, and I don’t practice in Alberta. Estate laws, while largely similar across Canada, vary from province to province. Additionally, my only knowledge of the case is based on what is printed in the article, and on the website the family has created. Ultimately, this big hairy mess will be up to the courts to decide. Please also keep in mind that my commentary is going to be from an Ontario perspective, and the law in Alberta, while similar, is not identical to my home province of Ontario.
The background.
In 2019, Steve, a retired financial advisor in Alberta, executed his will. In his will, his entire estate is left to a spousal trust for Mary, with the Foundation to receive the capital proceeds at the time of Mary’s passing. Mary and Concentra Trust (a professional trust company) are named as co-trustees, and are given “uncontrolled discretion to encroach upon the capital of the trust “ for the benefit of Mary for the length of her lifetime.
Mary claims that just prior to Steve’s death in 2020, that he wished to change the charitable beneficiaries of that trust to include roughly another 16 charities, however, due to the pandemic and (to quote the article) “his ailing health”, he was unable to amend his will prior to his death.
Mary has taken a very strong position that since this was her husbands wish, that these charities should benefit, not just the Foundation he named. To make things more complicated, it appears that the will has been held up significantly, because the name used for the Foundation in the will does not match the legal name of any charitable entity in Canada.
From what is written in the article, and on the family’s website, it appears that a year long delay occurred in order to have the court clarify that the Foundation in question should receive the funds. Now, according to the article, the Foundation has asked for financial disclosures on the estate, which it claims it has not yet received. The Foundation further goes on to say that it was not even aware it was a beneficiary of the estate until 2022, and that legal proceedings were already underway. It appears that the legal proceedings began in late 2021, when Mary requested “access [to] all the capital within the estate”. Concentra indicated that it was not comfortable approving this request without a court judgement on the matter. This appears to have started the ongoing legal action.
Whew…..to borrow a phrase from facebook, It’s complicated!
What the heck happened?
Based on what has been made publicly available, I have a lot of sympathy for both Mary, and the Foundation. From the publicly available information I have read, I think the foundation is being quite reasonable in how it is handling things. I don’t feel that the foundation is at fault at all – instead, almost all of the issues at hand could have been prevented if Steve’s will and estate planning had been done differently.
Let’s look at a few key things that would have prevented this mess:
- Using the correct legal name. In his sworn affidavit, Steve’s lawyer indicated that Steve had given him the wording used for the Foundation. Given Steve’s close connection to the foundation, and Steve’s background as an investment advisor, the lawyer didn’t think it was necessary to review or question the name used. Bearing in mind that Steve was in his late 90’s at the time, I do think the lawyer should have taken steps to confirm this information. Ideally, I like to see both the official legal name of the charity, as well as its charitable registration number listed in any beneficiary designation. It took me less than 30 seconds to search the CRA charity database to find both. It took a year of court action just to settle this after Steve’s death. I’m not a lawyer, and I don’t know what level of professional onus is on lawyers when drafting a will…but this seems to me like quite a basic step that should’ve been taken.
- Granting trustees discretion on the charity, or naming a private foundation or Donor Advised Fund as the charitable recipient. If the charitable gift clause had allowed discretion to the trustees to alter or chose charitable organizations, this mess could have been easily avoided. A donor advised fund account (DAF) held at a community foundation could have also been named, and arrangements made to allow Mary to suggest different charities. That said, a DAF does not legally guarantee that the donor’s advice will be followed – you are giving advice, not directions, otherwise a charitable receipt could not be issued. Finally, a private foundation could’ve been setup and named, given the roughly $40 Million that is held by the estate. While costly, family members could be name as directors, ensuring greater control. The biggest downside is that you need at least 3 directors in most circumstances to run a private foundation.
- Clarity on allowed actions, and a dispute clause for when trustees disagree. Trustees have fixed and firm legal responsibilities to both the lifetime beneficiary (Mary), and to the capital beneficiary (the Foundation). Concentra was clearly uncomfortable with Mary’s request to clear out the capital to her, as it would impoverish the Foundation as capital beneficiary. Since there are two trustees, and they are in disagreement, a court action is needed. It may have been helpful to have some sort of arbitration clause in the will for this kind of situation. Or, even better, explicit wording that Mary was entitled to be preferred over residual being left to the charity.
As you can see from the above, I feel that the drafting of the will is actually the biggest problem, from the evidence which is publicly available. So much of this dispute could have been easily avoided!
Is Steve’s verbal wish able to override the will?
Probably not. Your will is an important document, and your last will and testament is a legal document that trustees must follow as part of their responsibilities. When it is unclear, they need to get a court to ascertain the right course of action based on the rule of law.
You can’t verbally override your will. Here in Ontario recent changes will allow a judge more flexibility in limited circumstances to override aspects of your will that are unclear, but I am unsure if anything similar exists in Alberta.
The one clause that may work out in the Mary’s favour is the “uncontrolled discretion to encroach upon the capital of the trust”. I agree with Concentra that a judge should rule on this. It seems “icky” to me and a conflict of interest that a trustee could favour themselves in a trust as the spousal beneficiary, to the detriment of the capital beneficiary (the Foundation). I’m sure there will be case law on this that comes into play, and the right thing to do is to have a judge determine what is and isn’t allowed. Given the size of the estate ($40M), I’d suggest it would be hard for Mary to argue that this a “need”. Again, if the will had a clause specifically authorizing that it is OK for the capital beneficiary to be impoverished, then things would have been abundantly clear.
Does Steve’s health and the Pandemic change anything?
My understanding is nope. Steve could have done a Holograph will in his own hand, which would be considered legal, at least here in Ontario. Many lawyers had virtual options available for codicils or new wills. Given the phrase “Steve’s ailing health” in the article, if Steve’s health affected his mental capacity, it may have been legally impossible for him to update his will anyways.
Is the charity acting appropriately?
In my professional opinion, yes, absolutely. As a (now confirmed) named beneficiary of the trust, they are exercising their rights. Here in Ontario, (and presumably Alberta) all beneficiaries of residual amounts of the estate have the rights to request a full and property accounting of the estate. This is a very important right, as it ensures that trustees can be held accountable for their legal responsibilities. The foundation has a right to know that everything is done as per the terms of the will. Legally, however, the charity does also have the right to not accept the gift. Nothing compels a charity to accept a gift for any reason. They certainly can turn it down – but they also have a responsibility as a public trust to advocate for the final wishes of the donor to be executed as written. While the family appears to be “naming and shaming” the Foundation, based on what information is publicly available, I feel that the Foundation is acting legally, honourably and morally correct given the situation. I feel for them, however, as the general public may have a different opinion,
So who will win here?
In my opinion? Nobody. The charity is getting reputational damage, that I believe from what I have read is unfair. Mary is painting the charity in a poor light, but the charity is simply following what they are legally obligated to do. Steve’s will was pretty clear, and they do have rights as a beneficiary that they are rightly and justifiably executing. I don’t think a public pressure campaign in the right thing to do. They also aren’t, as far as I can tell, part of the underlying legal action. It appears, at least to my eyes, that the legal action is a dispute between the executors, on a matter that a better written will could have easily solved. Ultimately, a judge is going to have to weigh the rights of the income beneficiary (Mary) and the capital beneficiary (the Foundation).
To my eyes, this is a very sad case. At the end of the day, I feel that Steve’s will left a lot to be desired, and the net result has been a lot of stress and heartbreak for both Mary, and the Foundation Steve wanted to support. I think it’s horribly unfair for the family to be upset with the Foundation who appear to be correctly exercising their legal rights and obligations as a beneficiary of the estate. That doesn’t make them bad or evil – I personally think they are as much a victim of the circumstances as Mary, based on the evidence that is public. We’ll wait to see what the judge thinks in his or her ruling.
There’s one more huge issue that no one seems to be mentioning….
Believe it or not, there’s one other item that no one has flagged publicly that strikes me as a crucial issue. CRA will not allow a charity to issue a charitable tax receipt when a charity is named as capital beneficiary of a spousal trust, when encroachment on the capital is allowed. Steve’s estate will get exactly $0 in tax relief from his generous donation, no matter where his funds eventually end up. This could have been easily avoided by having a direct charitable gift, and a separate spousal trust, or by having Mary only have the rights to income from the $40M value of the estate. I have no way of calculating how much this will cost the estate, but it could be as much as $10 million.
I’m very curious what the family is doing behind the scenes in terms of tax planning. If the court allows Mary to take control of the funds, and give to different charities, then it might be possible for her personally to get a donation credit for the funds. The logic here would be that she could roll the funds out of the trust to be her personal assets, and then be able to claim a tax receipt for donations that she directs to charity. Without knowing all the legal and tax specifics I can’t speculate if this would rectify the problems with the wording in the will.
The biggest gift in all this might be to legal firms.
The big “winner” here, might be all the lawyers who will have some significant billable hours to sort out this messy estate. I’ve never met Mary or Steve, but I think I can say with confidence, that they were was certainly not Steve’s intent as a beneficiary of his estate!
This case is a sad, but important holiday parable for us all: get proper planning work done, and have a written, integrated plan of action for your own estate and financial plans. Get input from your lawyer, accountant, financial planner and other professionals to make sure your plans are as bullet proof and well thought out as possible. Hire a specialist who knows what the pitfalls might be, and don’t assume that making changes to your estate will be easy, or even possible.
I feel terrible for all parties – Steve, Mary and all the charities they each want to support. I don’t see anyone winning in this scenario, and I worry that the Foundation who was originally named is being cast in a poor light. While I deeply understand Mary’s frustration, all the publicly available evidence suggests that the Foundation has acted responsibly and properly. And that’s not a great present for anyone.
May your holidays, and your own estate plans be Merry, and not Messy.