My kids will never fight over my estate

Oh yeah? Mark Goodfield (aka The Blunt Bean Counter) encourages discussing your will with your family and explaining your intentions to avoid or minimize sibling estate issues.

estate_planning

Do your children have sibling rivalry issues that will almost certainly precipitate an estate fight?

In December 2019, I reviewed the book, Bobby Gets Bubkes. In that book, estate lawyer Charles Ticker attempts to explain how to avoid, or at least limit, sibling estate fights when drafting your will. In the comments section to that post, Michael James, who writes the excellent finance blog Michael James on Money, made the following remark:

“Sounds like an interesting book. Sadly, I’m guessing most people incorrectly think that their own kids would never squabble in these ways, so they think they don’t need to follow the book’s advice.”

Michael’s “guess” is very perceptive. Based on my experiences over 35 years as an accountant, many parents look at their children and their sibling relationships with rose-coloured glasses or, in some cases, with blinders. As a consequence, they ignore clear warning signals that their children have significant sibling rivalry issues and don’t work well together. In some cases, you can almost predict a sibling estate fight.

Let me be clear. I am not saying that every estate has a sibling fight. Many families settle and distribute the estate in accordance with the will and their parent’s wishes with little acrimony. However, this is far from the case in many estates, as human nature can turn ugly when there is money and sentimental items at stake, especially where sibling issues have reared their heads during the parents’ lifetimes.

Today, I am going to list factors that can cause siblings to squabble over an estate.

Why siblings squabble over an estate

Greed – Very simply, money causes some people to lose their minds and perspective. This can destroy sibling relationships.

Grabbers – I have seen this many times. One child “grabs”, or takes, items before the will is considered, or even ignores the wishes of the will, which starts a spiral of hurt and mistrust among the siblings.

Sentimental items – Children often fight over these items. In many cases, this issue can be avoided if the parent simply provides a specific item-by-item allocation in their wills of sentimental items such as jewelry. Parents can also cause huge sibling issues when they promise or tell a child they will receive a certain item and then do not specifically allocate that item to the child in their will—or worse yet, allocate the item to another child. Parents: always make your will consistent with what you have told your children, or communicate the change to them.

Grandchildren – There is no right or wrong answer here, but parents really need to think through how to allocate their estate when one of their children does not have children of their own or each family has a different number of grandchildren. Is the estate split equally by family? And if giving money directly to grandchildren, does each grandchild receive the same amount, or is the allocation equal by family and a grandchild with no siblings receives more than a grandchild with siblings?

Business assets – When parents leave a business to one sibling and equalize other siblings in cash or investments of equal value, one would think they have accomplished peak fairness. Yet some businesses explode after the parents die, making the child that took over the business very wealthy. Alternatively, the business may stumble or even fail, leaving that child in far worse financial situation than their siblings. Either way, the disparity in financial position creates acrimony. And it’s just one specific nuance of conflict in family business succession.

Asset in one child’s name – Parents often put assets in a child’s name for probate or tax planning purposes. But as the saying goes, ownership is nine-tenths of the law. Some siblings may depart from the parents’ assumption that they will act just as trustees of that asset for their siblings. They may think of themselves as the actual owner of the asset.

No parents, no buffers – One comment from Charles Ticker’s book I found truly relevant was “that once the parental referees are out of the picture, the gloves come off”. I have seen this so often. Parents really do act as buffers and referees for their children. Without a referee, disagreements can break out.

Spouses and in-laws – Spouses and in-laws in the ear of one child stoking their belief that the parents divided assets unfairly have caused many a sibling fight.

Parents: Have that discussion

Many of the above issues are human nature, which can’t be avoided entirely. But parents need to consider all the above possibilities when drafting a will. Readers of my blog will know that I am a huge proponent of discussing your will to a full or partial extent with your family and explaining your intentions. I think this can sometimes avoid or minimize sibling estate issues.

It is sad that sibling estate fights are even a topic, but they do unfortunately often become an issue. Parents, my suggestion to you is consider these issues, get good estate planning advice, consider a family meeting, and take off your rose-coloured glasses when planning your estate.

Taxpayer relief provisions

Taxpayer relief provisions, previously known as the fairness provisions, may provide relief from interest and penalties owing by taxpayers who, because of circumstances beyond their control, were unable to meet their income tax obligations. The provisions are applicable for ten years back from the application date (i.e. a request filed on or after January 1, 2011, must deal with an issue related to a taxpayer’s 2001 return or later).

The taxpayer relief provisions are very detailed and well laid out by the CRA, so I will not go into any further detail here, other than to say the following are situations where the provisions may be applied:

1. The CRA may waive or cancel penalties and/or interest when they result from circumstances beyond a taxpayer’s control (i.e. natural or human made disasters, illnesses, deaths, postal strikes, etc.);

2. The CRA may also waive or cancel penalties and/or interest when they result primarily from the actions of the CRA (i.e. processing delays, errors in CRA publications, etc.); and

3. The CRA may also waive or cancel interest when taxpayers cannot pay amounts owing because of circumstances beyond their control (i.e. loss of employment etc.)

Voluntary Disclosures Program

The Voluntary Disclosures Program (VDP) allows taxpayers to come forward without fear of penalty or prosecution, as long as they have initiated the process. If you come forward after the CRA initiates contact, the VDP will be denied. The VDP may be utilized by taxpayers for issues as varied as not reporting foreign income, to coming forward to report cash transactions, to reporting omitted capital gains transactions. While this provision may require a substantial payment of past income taxes, it provides relief from penalties, criminal prosecution and, as I have been witness to, stress relief.

While I am being slightly whimsical in saying that a VDP provides stress relief, I cannot understate how important that has been to a couple of clients I have had in the past. Some people almost worry themselves ‘to death’, unable to sleep and losing weight and making a VDP lifts an extreme weight from their shoulders.

A valid disclosure must meet four conditions:

1. The disclosure must be voluntary;

2. The disclosure must be complete;

3. The disclosure must involve the application or potential application of a penalty; and

4. The disclosure must generally include information that is more than one year overdue.

The CRA realizes many taxpayers are reticent about the VDP process and thereby offer a no-name filing option. Under this option, you can provide the CRA full disclosure of your situation without providing your name, the name of your company or other names that could be traced back to you; however, the details of the disclosure must be exact and complete. The CRA will then provide their opinion on the consequences of the VDP and whether it would be accepted. This opinion is not binding until you provide your true name. However, assuming the facts provided are complete, I have never seen the CRA renege.

The CRA has some discretion in VDP disclosures, and depending upon the situation may reduce the related interest charges or not require some years to be filed where there are multiple year omissions. Any additional relief is a bonus. The fact that the VDP removes any penalties and criminal prosecution is the reason why taxpayers come forward in the first place.

This is an edited version of an article that was originally published for subscribers in the June 2021, issue of The Taxletter. You can profit from the award-winning advice subscribers receive regularly in The Taxletter.

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