Failure to Launch: Adult Dependents and their Estate Rights

Paula Lester, Associate VP Estate and Trust Solutions, for Solus Trust, which is an affiliate of Raymond James. We recently published an article in the commentary and insights section of RaymondJames.ca called Failure to Launch: Adult Dependents and their Estate Rights and today Paula and I will discussing this case and questions it raises, including:

1. Overview of the case
2. Why is this case so astounding?
3. Who else might have a right to support from someone’s estate?
4. How does a court decide how much a person should receive under a support claim?
5. What can people do when planning their estate to either prevent someone from making a successful support claim like the one in this case?
6. Can a person avoid these support claims by making sure that all assets pass outside of the estate? For example, putting them in trust or naming a direct beneficiary on life insurance or registered accounts?

Follow the podcast on LinkedIn: The Advantaged Investor

Please subscribe, rate and review. Reach out at advantagedinvestorpod@raymondjames.ca

Transcript

Chris Cooksey: Hello, and welcome to the Advantaged Investor, a Raymond James Limited podcast, a podcast that provides perspective for Canadian investors who want to remain knowledgeable, informed, and focused on long term success. We are recording this on February 8, 2024, I'm Chris Cooksey from the Raymond James corporate communications and marketing department, and today, I'm looking forward to chatting with Paula Lester. Paula is associate VP of estate and trust solutions for Solus Trust, which is an affiliate of Raymond James, and we recently published an article in the commentary and insight sections of Raymond James.ca, we shared it socially as well, called failure to launch adult dependence and their estate rights. And today, Paula and I will be discussing this particular case. Welcome to the podcast, Paula. How are you doing today?

Paula Lester: I'm great. Thanks for having me.

Chris Cooksey: Excited to get started here. I'm glad you're doing well. This is a very interesting case and seems to be a lot of nuance to it, so I look forward to discussing it, and we'll jump right in. Before we get to that part, maybe just let us know, how do you help clients with their estate and trust needs?

Paula Lester: Absolutely. So as you mentioned, I work with Solus Trust, which is the trust company arm of Raymond James. And my particular role is to meet with clients who maybe are considering using our trust company for an executor role, a trustee role, or to assist with these roles, powers of attorney as well. And I meet with them, and I look at their estate planning holistically. So we sit down, we do the plan from a to z, which Is always how I recommend that people approach their estate planning. And so we look at, you know, how does Solus fit into that picture, but also just generally, what should go in the will, what other changes need to be made to bring that to fruition.

Chris Cooksey: Perfect. So sort of, as we call it, our part of the total wealth package that we offer here at Raymond James. Now we mentioned this case off the start, and just want to reiterate, this is not a general comment about adult dependence. It's a very specific case. This is we're we're not making any commentary on how difficult it is for young people to actually leave the nest these days with the price of housing and all that stuff. A very specific case here, so maybe we can just start there with an overview of this case.

Paula Lester: Of course. The case is called Chapman and Chapman, and the crux of it is that the mother had passed away. She had 3 sons surviving her. The husband had passed away sometime before. And when she passed away, she decided that what she wanted to do was leave certain streams of income to one son who was 67 years old when he when she had passed away, who had never really left the nest. He didn't live with her, but he's he stayed close by. He came over often. She ended up giving him certain amounts of money. She had actually purchased a sort of annuity for him, even while she was alive, and in her estate, she said, he's to get these income streams and then the rest of my estate goes this other way. Part of it went to her two other sons who she actually describes in the letter as being two kings, and then other parts go to her grandchildren and so on. And this one son, his name is Herbie, who didn't receive a larger share of her estate made a claim for additional support.

It's called a dependents relief claim, and he basically went to court and said, you know, I was dependent financially on my mom when she passed away, I qualify under the legislation to receive support from her estate, and she didn't leave me enough. So now I'm asking you, judge, for additional support and he was decently successful in the end. So he had been receiving, I believe it was around $1700 per month under what his mother had left for him, and he ended up receiving an additional $1250 per month from the court, because the court basically said, this is the difference between your needs, your sources of income, and where you need to what you need to have in order to get where you were while your mother was alive and supporting you.

Chris Cooksey: Wow. That's all you can really say. I mean, that's what comes to mind when you hear this. I would think there's a lot of things that make this really sort of astounding in a lot of ways. There was a written will. These are adults, so maybe we can just get a little deeper into why this is so out there.

Paula Lester: Yes. So, one of the factors is just his age, right? At 67 years old, to be considered financially dependent on mom, it's not something that we, at least not in the courthouse, do we see very often. The other aspect is that he didn't have so typically, when we see dependence in adults that old, there's a reason and typically a medical reason why they're still reliant. And so even though he sort of felt that he had schizophrenia, there was some discussion about him having certain episodes in the past, the judge said no. The medical evidence is not that you had schizophrenia, not that you have any disorder that stopped you in life from working. It's just you sort of chose not to, and basically the judge said though that doesn't matter. For all intents and purposes, it wasn't like, you could look at this case and say this man gave something up and did so much that he deserved to be supported. It was actually kind of the reverse. The mom actually left a note with her lawyer that expressed her sorrow over how her son had sort of squandered money that she'd given to him in the past. She bought a house. He'd squandered the proceeds of sale of the house when it was sold and how she effectively considered him a failure In life and felt very heartbroken about that.

Chris Cooksey: Now if we go look a little more broadly, who else might have a right to support from somebody else's estate?

Paula Lester: Yeah. This is actually really interesting and sometimes I'll talk with clients where they may have a support right and they are so confused because they didn't think that this person actually could claim support, but it's pretty broad, parents, sisters and brothers who might be financially dependent children. And the other piece is that parents can be broadened into not just your biological parents, but let's say I was raised by my grandmother. That could be a parent, so it's someone who has a settled intention and child could be not just your actual child, but someone you had a settled intention to treat as a child. So those are some classes people are surprised to hear, especially the brothers and sisters one too. But the requirement is so that you have to be sort of one of those categories, and then you have to have been financially dependent on the deceased when they passed away.

Chris Cooksey: Okay. Now in terms of, I guess, more of a structure on how this happens, how does the court decide how much a person should receive under a support claim?

Paula Lester: There's a number of factors. There's a huge host of them in the law as to what a court can consider, but the crux of it comes down to, what's the size of the estate? What was the lifestyle that was being supported by the deceased for this dependent? What are the dependents, limitations, and needs? And so in this particular case here, Herbie was 67. Had he been younger, maybe the court might have said, look, you have the ability to earn income, but it was a factor that at 67, not having been gainfully employed for 20 years, he was not going to earn income at this point in time. So that's a factor. In the case of spouses, they do look at certain sacrifices or behaviour, unconscionable behaviour. But the big ones are size of the estates, needs of the dependent, ability to have other sources of income, and then the other piece is, are there other dependents or competing claims? So maybe you have a spouse making a claim, but maybe you also have a dependent child making a claim. So those are the big factors.

Chris Cooksey: Alright. Now if you were sitting down in front of this individual and you're helping them plan their estate, and you want to prevent someone for making these sort of claims, what can people do? I imagine it's probably a little more complicated than just cutting them off at some point, but maybe not. So maybe we'll go into that.

Paula Lester: So for some people, it is cutting them off. You know, had this mother cut Herbie off many years earlier, then he wouldn't have had a claim. He wouldn't have been because he has to be financially dependent at the time of death. So for some cases, that can be it. Of course, you're not going to cut off your minor child. And for spouses, we see this a lot with second marriages where they say, I have my second spouse, but I'm going to leave everything to my children for my first marriage. Well, no. You have to actually look at your relationship. You can't necessarily cut them off. What you can do is you can look at having a contract between two parties in the case of spouses, that doesn't stop a claim, but it can sort of limit their exposure or the ability for your spouse to make a successful claim.

The other piece is making sure, and being quite conservative, that there is enough. So, in this case of the second spouse, sometimes we look at a large life insurance policy that goes to the spouse, along with some assets to sort of really try to make sure that they have enough from the estate or in general, that they would not be successful in a relief claim. But it's hard to sort of understand how much that is. That could be difficult to plan for.

Chris Cooksey: Now is there anything you can do in terms of avoiding these support claims by having assets outside your estate, maybe a trust of some sort, or is there any accounts they can go into that avoids it?

Paula Lester: So not really. There are some limited exceptions, but the court has a really wide discretion to pull assets back into the estate. So, again, this is all listed out in the legislation, and it's pretty extensive. You know, things like gifts made right before death because I know I'm going to pass away. I don't want my spouse to have a claim. I'm just going to give things to my children. No, that can be clawed back in. Things put into a trust, must trusts, where I'm still a beneficiary, I still have control, will be clawed back in. Life insurance that I owned, clawed back in. RSPs that have a direct beneficiary, clawed back in. There are some exceptions, if I have an ex-spouse where I'm holding life insurance to secure a spousal support claim. I owe a spousal support to my ex spouse, and I have a life insurance policy. It's better for her or him to own the policy. Because if I own it, it can be clawed back into my estate if I die. But If they own it, then then it can't be clawed back into my estate. So there's some exceptions, but have to work with an estate professional because it's so nuanced.

Chris Cooksey: I think that's a great example there because I think so many times, you die, I have a will, it all goes out. But there are these exceptions and probably a lot more than what we're talking about today, it's a lot harder than just who gets my baseball cards. Is there anything else you'd like to leave us with today?

Paula Lester: A funny little tidbit. I looked at the costs decision on this case. So, you know, Herbie ended up being successful in getting an extra $1250 per month. His costs per what he submitted were over $270,000. That's not unusual. And so, you know, sad for Herbie, but the other piece is that the because he was successful, the court said $160,000 of that is going to get paid out of the estate. So Herbie was on the hook for over $100,000, but also the estate lost an additional $160,000 in value on top of what Herbie ended up winning. The ultimate people who suffered were the grandkids who were supposed to get divisions of the residue. And I like to highlight that because we think about justice is served or end result or whatever, but if you can avoid all of this, if you can do the planning ahead of time, or do the administration during the estate administration to avoid going to court, that is exactly what you want to do 99 percent of the time, because as soon as you go to court, everyone loses. I say that because I started my career as an estate litigator and that’s part of what I bring when I am doing estate planning with clients,. We're just looking at it to say, how do we make sure this does not go to court no matter what.

Chris Cooksey: Always good not to assume things and consult an expert for sure. Well, awesome. I just want to thank you for taking the time joining today, Paula, and I hope you will come back again to discuss more estate and trust issues or good news stories.

Paula Lester: Of course. Anytime. Would love to.

Chris Cooksey: Reach out to us at AdvantagedInvestorPod@RaymondJames.ca. Subscribe to The Advantaged Investor on Apple, Spotify, or wherever you get your podcasts. Please contact your advisor with any questions you have. On behalf of Raymond James and The Advantaged Investor, thank you for taking the time to listen today. Until next time, stay well.

This podcast is for informational purposes only. Statistics and factual data and other information are from sources Raymond James Limited believes to be reliable, but their accuracy cannot be guaranteed. Information is furnished on the basis and understanding that Raymond James Limited is to be under no liability whatsoever in respect thereof. It is provided as a general source of information and should not be construed as an offer or solicitation for the sale or purchase of any product and should not be considered tax advice. Raymond James Advisors are not tax advisors and we recommend that clients seek independent advice from a professional advisor on tax related matters. Securities related products and services are offered through Raymond James Limited. Member of the Canadian Investor Protection Fund. Insurance products and services are offered through Raymond James Financial Planning Ltd, which is not a member of Canadian Investor Protection Fund.