Generously funded by the Law Foundation of British Columbia, this report is the first comprehensive and internationally comparative study of elder and guardianship mediation in Canada.

As a person ages, mediation may be used to resolve disagreements in the context of estate planning, financial planning, organizing caregiving, developing a housing plan, discussing lifestyle choices—varied circumstances where an older person may involve family or other support people in problem-solving, especially where there is a desire to resolve a legal matter without going to court.  Anticipated changes to guardianship law in BC include mandatory mediation in certain circumstances.

Elder and guardianship mediation is a new but growing area of practice.  The work gives rise to complex ethical and practical questions in regard to maximizing the ability of the older person to participate in decisions about his or her future as well as ensuring age-based discriminatory assumptions and values are not affecting the decision-making process.

“As a province we are now at the precipice of proclaiming new legislation governing adult guardianship mediation and also of tremendous growth in the field of elder mediation, based on demographics,” says Executive Director Jim Emmerton.  “In order to move forward practitioners, policy-makers and educators require access to comprehensive information on elder and guardianship mediation.  This report fills that need.”

This large report includes consultation feedback from elder mediation leaders from across North America and compares lessons learned from key pilot guardianship mediation programs in other jurisdictions in the US and Canada.  The report concludes with recommendations for training and standards for elder and guardianship mediators, ethical standards for practice, mediation models and styles, as well as for the design and development of a court-connected adult guardianship mediation program in BC.

The report is available online at http://www.bcli.org/ccel/projects/elder-and-guardianship-mediation.

The Canadian Centre for Elder Law strives to be a leader in law reform by carrying out the best in scholarly law reform research and writing and the best in outreach relating to law reform as they relate to older adults.

The Adult Guardianship and Planning Statutes Amendment Act, 2007 (the “Act”) came into force on September 1, 2011 and revises the Power of Attorney Act (“POAA”), Representation Agreement Act and Health Care (Consent) and Care Facility (Admission) Act (“HCC”).

The amendments to the POAA provide greater legislative certainty in both creating and exercising enduring powers of attorney.  Although existing enduring powers of attorney may be grand-parented under the Act, it would be prudent to review your power of attorney with a lawyer to determine if it needs to be modified to reflect your wishes in light of the new legislation.

Some notable amendments to the POAA are as follows:

• An attorney may not be compensated unless there is an express authorization within the document;
• An individual who is paid to provide personal or health care services is barred from being appointed as an attorney;
• The attorney must now sign the document before they can act; and
• There is an express requirement that the attorney keep and produce financial records.

Another significant change is that as of September 1, advance directives are recognized as legal documents which allow an adult to provide advanced consent to or refusal of treatment directly to a health care provider.  In other words, if an incapable adult does not have a Committee appointed or a Representative pursuant to a Representation Agreement, the health care provider can directly on instructions contained in the advanced directive.

I was on the Bill Good Show on Monday, June 13^th, 2011 to talk about the evolution and increasing use of social media in the context of family law.  A description of and an audio link to the interview are below:

 TURNING TO FACEBOOK TO CATCH A CHEATER: SOCIAL MEDIA AND DIVORCE

New York congressman Anthony Weiner’s marriage is in trouble after reports surfaced that he had taken pictures of his private area and sent them to a slew of women he did not know. And he’s not the only one in hot water after impulsively hitting the “send” button rather than thinking with his brain.  Research shows that social networking sites like Facebook and Twitter are increasingly being blamed for the breakdown of marriages. How are people getting caught red-handed online? How is this evidence being used against them in divorce court? And what does narcissistic personality disorder have to do with it all? 

For the complete interview: CKNW-June.mp3

Erica Pinsky, M.Sc, CHRP, is a respectful workplace solutions expert.  As a speaker,  trainer, author and consultant she provides a full range of customized services and solutions to eliminate discrimination, harassment, bullying and  destructive conflict in the workplace.  Her highly acclaimed book, “Road to Respect: Path to Profit” is filled with engaging stories, powerful insights and concrete strategies on how to become an employer of choice by building a respectful workplace culture. Erica has been featured in the Globe and Mail, Business In Vancouver and Canadian Retailer Magazine

Heritage Law is featured in Erica’s June edition of her newsletter Reflections On the Road to Respect.  The link to the newsletter is here and the full text is below:

I heard about Heritage Law quite by accident. I met lawyer Monique Shebbeare at a networking event.  I learned that she was working in a firm focused on estates, wills and family law. Then she shared that she is the mother of an 18 month old.

Given what I know about the huge career challenges that face female lawyers with children I was immediately curious to learn more about her experience. The decision to have children, which research has consistently confirmed continues to be a “career limiting” move for women in the corporate world, is particularly true in the case of female lawyers. While women make up more than 50% of law school graduates, very few of those women ever make partner at most firms.

I was all set to hear a story of stress, guilt, conflict and long hours when I asked her about her experience parenting as a  working lawyer.  Much to my surprise, she told me was thriving. The reason directly relates to the culture of the firm she works for: Heritage Law.

Heritage Law broke the mould with respect  to traditional  law firm cultures. Founded by Nicole  Garton-Jones when she was pregnant with her first child, the firm was structured to support its lawyers to be successful at both the practice of law and parenting.  Six years later, the firm is enjoying healthy growth and success.  The female employees, their families and their clients are all reaping the benefits of Ms. Garton-Jones vision.

Given that what I was hearing sounded like a workplace culture aligned with the value of respect, one that is creatively finding new ways to embrace diversity, I was most interested in learning more about the workplace culture at Heritage Law.

I had the opportunity to do so recently when I went over to West Vancouver to speak with Ms. Shebbeare as well as Ms.  Garton-Jones. Here are some of the highlights of what I learned.  To hear more, please listen to the entire interview.

Innovation and  Technology
Like many business innovators, Ms. Garton-Jones was looking for a solution to a problem.  Having worked in both large and small law firms, she was familiar with the challenges faced by female colleagues when they decided to start a family, challenges which result in many choosing to leave the profession, a choice she was not willing to make.

Her vision involved the creation of an alternative model, one that would effectively manage the competing demands of building a new law firm and being a new mother.  The question was how to do it.

Technology provided a large part of the solution.  “We put an IT structure in place to facilitate high level legal services that could be done on a flexible basis.”

Heritage Law is “paperless” and utilizes practice management software to centrally manage billing, time tracking, matter information, contacts, appointments, documents and document assembly.

One of the first things I noticed when I walked into Ms. Shebbeare’s office was that she had two monitors.  That is one aspect of the paperless structure.  All of the  firm’s data and specialized software applications are stored in a remote, secure “cloud” server.  All of the information that she and her colleagues need to do their jobs can be accessed from anywhere as long as there is an internet connection.

Another piece of technology that supports the kind of flexibility working parents need is provided by the VOIP (voice over IP) phone system which allows ten staff in ten different locations to use the same phone line and system.  They use a remote answering service which answers client calls during the business day if a staff member is out of the office and routes the message to the appropriate person to deal with.

All staff have a computer, high speed internet, a VOIP phone and a scanner at their home offices.  The firm’s core philosophy, one intricately aligned with the value of respect, is to create a “caring and supportive culture that really fits each lawyer’s life needs.”

NGJ – “I focus on keeping the overhead low to provide flexibility.  It is really about finding a balance between keeping the overhead low and providing enough resources so that they can be the best lawyers that they can be. Technology allows us to make more money in less time.”

Culture Attracts Talent
Work-life balance, or work life integration as I refer to it, is largely seen as a “woman’s issue.”  Unfortunately, this tends to side line the bottom line business value of creating a workplace culture that truly respects the whole person at work.  In addition to being a critical factor in supporting employee health and promoting workplace wellness, Ms. Garton-Jones described the firm’s culture as a “significant strategic advantage in terms of attracting great talent.”

It was Heritage law’s “culture of flexibility and autonomy” that interested Ms. Shebbeare (who Ms. Garton-Jones described as a brilliant lawyer).  “Quite a few of us were at top firms, but those cultures didn’t work for us. Here we decide how we want to live our lives as lawyers.  There is a  shared understanding among the lawyers about that.”

Ms. Shebbaere shared her experience working in both the 300 person Bay Street firm as well as smaller traditional firms, with “fixed requirements of when and how you do your work as well the level of output required regardless of the business outcome of the firm.”  What appealed to her about Heritage law was that it was structured so that she could meet the same business results but do it in a way that worked with her life as a new mother. “No one is looking over my shoulder to say is Monique here, or where is Monique?  Rather the focus is on how your practice is going in terms of building your practice. Are our clients being served? What are the business results at the end of the day?  I can meet all of those objectives and still have a great deal of flexibility.”

The culture at Heritage Law is values based. At its core it is about shifting from a power based, paternalistic, command and control framework to a collaborative, partnership model based upon a foundation of trust, mutual respect and accountability.

Ms. Garton-Jones chose to combine the traditional law firm values of professionalism, commitment to client service, professional excellence, integrity, ethics and contribution to the community with other core values including innovation, collaboration, caring and nurturing to create the work-life balance that was, as she stated, “a business necessity,” as opposed to a “nice to have.” Work life balance was not an option.  It was necessary for the survival of the firm.

NGJ  “We don’t have command and control hierarchical model which you see in most traditional firms. We don’t have the senior partner who tells everybody what to do.  It is truly more collaborative.  You can say that a lot of those values are female values, and interestingly enough we are all women.”

However, It is not just woman that are looking for a collaborative culture that offers employees  flexibility, autonomy and control.  Ms. Garton-Jones, a Gen Xer, shared an experience she had speaking with a young Gen Y man, a really talented lawyer who she would like to have join the firm.  He told her that the culture at Heritage Law would be one which would be ideal for him and others in his generation. “You really get me,” he told her.

NGJ – “We did not set this up for women.  I set this up because of necessity, and then other smart, conscientious women, interesting people contacted me.  In traditional firms a lot of connections are made on the golf course, on the squash court.  We have the female connection.  It was not that men were excluded it was just that they were not in on the conversation.  Now I am pro-actively out there to find a man.  I think it would be good for our culture to have a male lawyer. Diversity is good because having a variety of views at the table creates a better organization.   I think the firm will be improved to have a man, to have different ethnicities. That is what I want. That will only allow us to be better, stronger and have a wider variety of views at the table. Gen Y, they want autonomy.  Their view of success is a little more holistic. I think there are different values about what people expect in the workplace. It is not necessarily a male female divide. It is generational as well.”

According to Ms. Shebbeare “This is more of a horizontal model. There are business goals but how we go about meeting the business goals is more up to us. How do I like to practice as a lawyer? What is my individual personality as a lawyer?  If I need support I have people I can call but I don’t have to answer to anyone. The structure creates an emotional and psychological difference. In other places it was more that other people were in charge of my life and here I feel like I am in charge of my life, I am my own boss.”

It is well known that lack of control, particularly at work, is one of the main contributors to stress, a costly and damaging problem in today’s workplaces.  Ms. Garton-Jones shared some surprising information about the legal profession with me that I had been completely unaware of.  “Studies show that there are extremely high rates of alcoholism and depression within lawyers working in traditional structures. Lawyers have much higher suicide rates than the general population. The traditional model is not conducive to wellness. The pressures of the profession are significant. We want to make it a job, not a sprint.  We are in it for the long haul.”

Given that the firm is all women, I was curious about their experience with this kind of workplace bullying. I have worked as a consultant in many female dominated environments where disrespectful behaviour is a huge problem. What I heard confirms what I consistently hear from respectful, values based employers: it does not happen here because it is at odds with the cultural norms.

NBJ – I have experienced that at other firms.  Bullying happens when it is a highly competitive environment where there are not many roles for women, so rather than supporting each other they start competing with each other. In this office it is not an issue because there are no barriers to advancement, there is no scarcity of opportunity. People are only bound by their vision and the amount that they want to work.  It is not part of our culture.”

Supporting Success
I describe respectful leadership as relationship based leadership.  The practices that demonstrate respectful leadership are designed to promote success, for the leader, those she/he leads and the organization as a whole.  Ongoing, respectful communication is the foundation of this leadership style.

Ms. Garton Jones described a leadership style aligned with the value of respect. “I have a vision.  I hire extremely smart, conscientious people that I respect and give them the resources they need to manifest their potential. Bureaucracy is meant to manage mediocre employees. Get great people, give them the resources they need to be successful and then get out of their way. I am not Monique’s boss.  I happen to be paying the lease but Monique is truly my colleague.  My job is to facilitate the back hand. I make sure that they have the tools that they need to be successful. I ask questions – what do you need to be successful? We communicate back and forth. I make sure that the lawyers have the resources and infrastructure in place to provide the support that they need.”

Ms. Shebbeare commented. “You own the firm and had some expectations which we talked about right at the beginning but other than that I would say to Nicole, this is the practice I envisage for myself.  It is a constant negotiation, about my needs and the needs of the firm.  It is a fluid conversation. Nicole arranged for a coach to support the lawyers, who helped me set up business plan.  We have admin support, web site and support, continuing education.  The costs of networking are paid for by the firm.  All of these factors help me at the initial stage of building a practice.”

Last month’s enews focused on values based company Ben and Jerry’s, and their triple bottom line of people, profit, planet.  I asked Ms. Garton-Jones and Ms. Shebbeare to talk to me about their vision of success;  personal, professional and organizational.  What I heard was consistent with the attitudes of other socially conscious, values based companies.  Profit, measured in strict monetary terms, is a critically important part of the equation, but it is not the only indicator of success.

Ms. Garton-Jones’s perspective was that it was about being “Successful as professionals  in serving  our clients, giving back to our communities, and making sure that we are contributing to our families.  Finance is important because without financial success none of the other things can be accomplished.  It is one piece of a larger construct.  We do have minimum requirements, some set criteria but they are not onerous. They are for financial viability. The goal is not that the lawyers are going to be a profit center.”

Success for Ms. Shebbeare is about “being recognized as a professional, as a leader in my area of practice. Being seen as an expert. Making a living. And my underlying belief is that you can do that in a way that still allows you to have a life with your family.”

No doubt the thriving practices of the lawyers as well as the business growth at Heritage Law is proof positive that she is right!

Monique Shebbeare and I recently had the pleasure of chatting with Erica Pinsky, MSc, CHR, a “Respectful Workplace Solutions Expert™,” to discuss Heritage Law as part of a series featuring companies that are “getting respect right”.  Erica offered that “learning about firms like yours affirms my vision of the possibility of respectful workplaces where people are treated like adults within a connected, compassionate community, and inspires me to keep working to spread the message and promote change.”

Thank you very much to Erica for the opportunity to participate in your series.   A link to the podcast is here:

http://ericajpinskyinc.ca/erica_pInsky/Podcast/Entries/2011/5/31_Heritage_Law.html

Erica can be reached at:
(604)266-1267
http://www.ericapinskyinc.ca

I had the opportunity to be a guest on the Bill Good Show on May 31st which was a lot of fun.  A description of and an audio link to the interview are below:

THE WORST FIGHT OF ALL
What could be uglier than children fighting over their dead parent’s estate? Not much… but it’s happening more often than you think. These fights can get vicious, often landing brothers and sisters in court. What are the rules that govern what happens to big assets when someone dies? If they leave a will, shouldn’t that be binding in accordance with their wishes? Or are there loop holes that allow children and other family members to make a claim on their will?
NICOLE GARTON-JONES, ESTATE LAWYER, HERITAGE LAW

CKNW- May 31 11 – Interview with Nicole Garton Jones_Joined

I enjoyed presenting today on estate disputes and how to avoid them on the BC Almanac show on CBC Radio One, hosted by Mark Forsythe.

A link to the podcast is here or here.

There is a lack of a common definition of a family business but it is generally considered to be a business with two or more family members who have financial control of the company and there is some intent to transfer the business to the next generation. Over 90% of family businesses in Canada are family businesses.

Family businesses employ approximately six million Canadians and an average family business employs approximately 18 employees.  The total annual sales of Canadian family businesses are estimated to be $1.3 trillion.

Family businesses are often reflected as a system of three intersecting circles: the business circle, the family circle and the ownership circle.

The most successful family businesses have a balance and clear boundaries between the three circles with professional business management, responsible ownership and a harmonious family culture.  Assisting families to successfully manage the three spheres presents difficult dilemmas.

How do you balance individual desires and differences with the interests of the family and the development of a shared vision?  Are the interests of the business or the family more important?  How do you celebrate tradition and successes of the past while focussing on the future and a rapidly evolving business climate?

What does it mean to be a successful business owner and how does that differ if you do or do not have a role in the family or business management circles?

How does the business successfully transition from the founding entrepreneur, to the sibling partnership to the cousin consortium stage?

Succession is the greatest long term challenge that most family businesses face.  Less than one third of family businesses make it to the second  generation and only approximately 13% make it to the  third generation.   The failure to plan and manage succession well is the greatest threat to the survival of a family business.  This not only has significant impacts on the hopes, dreams and wealth of individual family members but also on the greater economy as a whole given the pivotal role family businesses play.

The most successful succession plans involve careful planning over many years, and it is the CEO’s responsibility to initiate and manage the process in a timely manner.  The CEO must develop a strategic business plan, create a process to identify and choose successors and train potential successors.  The CEO must ensure that an adequate estate plan is put in place.  The CEO must prepare the family for succession, often through the development of a family mission statement that elucidates the family’s relationship with the business.  The CEO must ensure that the next generation of owners is educated on how to be effective owners and to function well as a co-ownership team.  The CEO also needs to focus on preparing for a financially secure and enjoyable retirement or second career.

Given how high the stakes are and its pivotal role in the future of the individuals involved and the business itself, the succession process can be filled with tension and conflict between individual and collective family, business and owner stakeholders.

One way to manage the complexities of the family business succession process is through professionally mediated family meetings.  A professional mediator can assist by convening the meeting including determining who will participate and obtaining buy in for the process from all the parties; assigning roles and responsibilities including setting the agenda and ground rules; facilitating group problem solving including involving appropriate experts; reaching and recording agreement; and holding parties to their commitments including monitoring changing circumstances and arranging to reconvene as necessary.

Whatever the purpose of convening a family meeting, the process of gathering as a family to communicate in a structured way can encourage members to act on important and shared values, with valuable results for both the business and the family alike.  Family meetings also often spark a desire to codify a family constitution or mission statement articulating the family’s values and the mechanism by which they are expressed in the business, the family and the community as a whole.

Succession may be the most difficult life cycle of a business, but it also has the highest rewards.  Why not start today.

The greatest hurdle to handing down a cottage successfully is poor estate planning.

There are two central issues to be aware of:

1. Capital Gains Taxes

Taxation issues lie at the root of many cottage bequest problems.  The biggest issue that that capital gains taxes must be paid when the cottage is sold or gifted, either during the parents lifetime or after their death.

Estimate the capital tax payable

a. What is the fair market value today?

Start by figuring out the present fair market value (FMV) of the cottage. Check recent sales in the area, ask a realtor for an opinion of value, or pay for an appraisal.
What is the cost base?

b. Find the cost base of the cottage. If you acquired the cottage after 1971, the value as of the date of acquisition is the cost base. If you acquired it before 1971, then the value as of December 31, 1971, is the relevant amount. If you cannot get this value by yourself, appraisers can research comparable sales.

c. How many capital improvements?

Next, add up the capital improvements made to the cottage or the property since you acquired it. This would include new docks or additions, replacing the roof or windows, installing a new well or pump. You can’t include simple repairs, maintenance or the value of your own hard work in improving the cottage, only the amount actually paid to others.

d. What is the adjusted cost base?

Now add the cost base and the capital improvements. This will produce the adjusted cost base (ACB). (If you made use of the capital gains tax exemption before it was taken away in 1994, then you can get the ACB from the tax return in 1994. The process above still applies, but from 1994 instead of from the date of acquisition.)

e. What is the total capital gain?

Subtract the Adjusted Cost Base from the Fair Market Value. This gives you the total capital gain.

f. What is the tax payable?

Divide the capital gain figure by half to get the taxable capital gain, then again by half to approximate the tax actually payable.

Take steps to reduce the capital gains tax payable

• Transfer it to children  in stages rather than all at once (i.e. 20% a year for five years) to reduce capital gains taxes payable  (and also prevent a possible clawback in OAS)

• Transferring it via your will may result a higher total amount of capital gains payable, but there may be more sources of payment available

• Use the principal residence exemption (you can choose to designate your cottage instead of your house as a principal residence for a specified period). You and your spouse are able to claim only one principal residence per tax year.  You don’t need to identify a principal residence until the residence is sold or ownership is otherwise transferred.  This means the designation can be applied in hindsight, by reviewing the history of the changes in the value of the principal residence and cottage and moving it between them for particular years to minimize the capital gains impact.  This can be done as part of settling an estate or when selling a property.

Determine how to fund the capital gains tax liability

• Savings and investments
• Life insurance (adult children can pay premiums)
• Have the beneficiary children pay the capital gains taxes triggered on inter vivos transfers
• Use the cottage itself to fund the capital gains tax (subdivide and sell a lot; register a mortgage that the children can pay off over time)

Ongoing Management: the Use, Operation and Expenses of the Cottage

How will the children use, operate and fund the expenses of the cottage?

Among the questions to be answered are:

• Can any child use the cottage any time, or will there be periods of exclusive use?
• Who will open and close the cottage?
• Who makes sure the bills are paid?
• Who is responsible to pay the bills, whether it’s replacing the septic system, paying the municipal taxes or repairing the roof.  How do you deal with differing financial resources of the children?
• Who decides if improvements or additions are to be made?
• If a child dies, does his or share of the cottage pass to the spouse and children, or does ownership continue with the surviving siblings only?
• What happens if a child divorces or goes bankrupt?
• What happens if one or more of the children wants to sell?
• What happens if the children stop getting along and/or reach an impass?

A Co-Ownership Agreement, negotiated while the parents are alive and able to assist, can be invaluable in retaining family harmony and enabling successful second- and third-generation ownership.

A Co-Ownership Agreement is essentially a business partnership agreement. Some issues addressed are identical, like decision-making procedures and disposition of interests by the partners. Other matters are unique to cottages and your own family’s needs and desires.

Vehicles to Transfer the Cottage to the Next Generation:

Retain Sole/Joint Ownership by Parents & Transfer Via Will

• Best for simple succession situations
• Pros: wills are simple and inexpensive to create; parents retain ownership and control during their lifetime
• Probate fees (approximately 1.4%) will be payable on the assessed or market value of the cottage
• Capital gains taxes will be payable on death
• How to deal differences in children’s incomes and financial resources: leave a certain sum of capital in trust in your wills to be used exclusively for cottage purposes ( referred to as a testamentary trust).   It enables all or a significant portion of the cottage operating costs to be paid from the trust, rather than from the childrens’ own pockets. Furthermore, if there is a need for a substantial expenditure, then the trust capital can be encroached upon for that purpose, avoiding a financial emergency. The use of a testamentary trust compensates for the differences in economic positions between the children, to the benefit of all.

Inter Vivos Gift or Sale to Children

• Best if parents are ready to give up ownership and control of their cottage now
• Pros: no probate fees are payable; children can assume ownership costs and responsibilities; additional capital gains deferred to recipients
• Gifting is simply transferring an interest in the cottage without requiring payment.
• You cannot save on capital gains taxes by gifting. For tax purposes, the property is deemed to pass at fair market value. You must report the gift transfer on your next income tax return as a taxable disposition using the fair market value (FMV), even though you actually received no money. This is one of the impediments to cottage succession – even though the parent may choose to give the cottage away, the tax costs are the same as a real sale, and the parent does not have sale proceeds to pay the tax.
• Property Transfer Tax may be payable (1% on the first $200,000 and 2% on the remainder) of the assessed value, whether gifted or sold

When a related individual transfers a recreational residence , you may be exempt from paying PTT.
The following people are considered to be a related individual:

• your spouse, child, grandchild, great-grandchild, parent, grandparent or great-grandparent,
• the spouse of your child, grandchild or great-grandchild, and
• the child, parent, grandparent or great-grandparent of your spouse.

Your spouse is:

• a person who you are married to, or
• a person who you are living and cohabitating with in a marriage-like relationship, provided that you have been living and cohabitating in that relationship for a continuous period of at least two years. This includes a marriage-like relationship between people of the same gender.

The following are examples of people who are not considered to be a related individual: your sister, brother, uncle, aunt, niece or nephew.

A property is considered to be a recreational residence if the following four criteria are met.
1. Before the transfer, the person transferring the property to you (the transferor) usually resided on the property on a seasonal basis for recreational purposes. Please note: When a trustee is involved in a transfer, the trustee becomes the transferor and this requirement applies instead to the settlor or the deceased.
2. The property is classified as residential by BC Assessment. The property includes the land and any improvements on the land (e.g. buildings).
3. The land is 5 hectares (12.36 acres) or smaller.
4. The property has a fair market value of $275,000 or less.

• Consider retaining a life interest in the cottage, whether gifted or sold (can be registered on title to the cottage in the Land Title Office)
• A  life interest provides several advantages to the parents. One is that it entitles them to use the cottage for their lifetime as of right, not rely upon the continued goodwill of the child who now owns the cottage. Another is for the parents to retain a measure of control. With a life interest, the child cannot “cash in” on the cottage by selling it or mortgaging it, without the involvement and consent of the parents. This would defeat the intention of keeping the cottage for family purposes. If and when the parents are no longer interested in using the cottage, or are no longer concerned that a child may cash in on it, then the life interest can be released.

Transfer to a Trust

• Best if parents wish to leave the cottage to children without the costs of probate for their estate, but do not want to relinquish control
• A possible solution to leaving a vacation property to more than one family member is to transfer it to a trust.  In addition, a trust affords benefits such as creditor protection, the ability to defer capital gains taxes on capital assets and centralized asset management.

Multiple Beneficiaries, Centralized Management and Creditor Protection

• The trust can be structured to govern who is entitled to benefit from the property, how it is managed and what to do if the trustees can’t agree.
• The trustees of the trust could be one or more individuals who would have the power to make certain decisions, and the beneficiaries could include not only children, but potentially grandchildren or other relatives.  An advantage to a discretionary trust is that none of the beneficiaries have any vested right to the property – they will only be entitled to use the property as the trustees allow and/or when the trustees decide to distribute the property to them.  In the meantime, if a beneficiary dies, there will be no tax liability resulting from their interest in the trust.  If a beneficiary suffers a marriage breakdown or experiences creditor issues, they will have a strong argument that they have no interest in the vacation property, and that it therefore should not be subject to asset division or seizure.

Tax Considerations

• When an asset is transferred into a trust, the transfer will trigger a deemed disposition of any unrealized capital gains (except in the case of a spousal, alter ego or joint partner trust).  Once the property is transferred into a trust, it can grow in value in the trust and the death of a beneficiary will not trigger any tax liability.
• There will be a “deemed disposition” of the property held in the trust every 21 years thereafter.  This means that any unrealized capital gain in the value of the recreational property will be triggered on the 21st anniversary of the trust and the tax will have to be paid (unless the trust property is distributed to a successor trust or Canadian resident beneficiaries prior to the 21st anniversary).
• The property in the trust will not be subject to probate fees, currently approximately 1.4% of the gross value of the estate.

Primary Residence Capital Gains Exemption Issue

The Income Tax Act allows a home owned by a “personal trust” to qualify as a principal residence if the recreational property was ordinarily inhabited in the calendar year ending in the relevant fiscal year of the trust by an individual beneficiary of the trust or a child, spouse or former spouse of such a beneficiary. A beneficiary who satisfies this test is referred to as a “specified beneficiary”.

A personal trust is defined by subsection 248(1). Generally, a personal trust is either a testamentary trust or an inter vivos trust where all of the beneficiaries received their interests as gifts. In order to limit the types of taxpayers who can benefit from the principal residence exemption in respect of a home held through a trust, a number of limitations are placed on the ability of a personal trust to claim the benefit of the exemption.
Pursuant to paragraph (c.1) of the definition of “principal residence” in section 54, a taxpayer that is a personal trust may designate a property as a principal residence if:

• the designation is made in the prescribed form and manner;
• each individual who in the calendar year ending in the taxation year, is beneficially interested in the trust and ordinarily inhabits the housing unit, or has a spouse, former spouse or child that ordinarily inhabits it, is listed in the designation;
• no corporation other than a registered charity or partnership is beneficially interested in the trust at any time in the year;
• no other property has been designated for the year as a principal residence by a specified beneficiary of the trust, by the beneficiary’s spouse (other than a spouse who was throughout the year living apart from and was separated pursuant to a judicial separation or written separation agreement from, the beneficiary), by a person who was the beneficiary’s child (other than a child who was during the year a married person or 18 years of age or over) or where the beneficiary was not during the year a married person or a person 18 years of age or over, by a person who was his or her mother or father, or his or her brother or sister who was not during the year a married person or a person 18 years of age or over.

The designation which must be filed by the trust must specify each individual who was a specified beneficiary of the trust in the calendar year ending in a relevant fiscal year of the trust. A designation by the trust is not valid if any of the following persons have designated any other property as their principal residence:

• a specified beneficiary of the trust;
• a spouse of a specified beneficiary unless the spouse is living apart from the specified beneficiary pursuant to a judicial separation or a written separation agreement;
• a child of the specified beneficiary unless the child is at least 18 years old or married;
• a parent of the specified beneficiary unless the specified beneficiary is either married or at least 18 years old; or
• a sibling of the specified beneficiary unless either the sibling or the specified beneficiary is either married or at least 18 years old.

**Note: A property which is validly designated as the principal residence of a trust is deemed to have been designated by every beneficiary of the trust as that person’s principal residence for the calendar year ending in the relevant fiscal year of the trust. This rule prevents the trust beneficiaries from designating any other property as their principal residence for the year.

Transfer to a Family held Non-Profit Organization

• Best for those with a large cottage property suitable to being shared by an extended family
• Enables successive generations of family to use the cottage without incurring capital gains tax or probate fees
• Initial transfer will likely trigger a capital gain which in the case of a large property could be massive
• Demographics can force the sale of such compounds: too many members and too little space
• Expense of ongoing accounting and legal fees

I recently attended the 2010 World Summit & Symposium on Elder Mediation and presented on the topics of ethics and planning for incapacity.

I enclose my presentation slides on both topics:

It is estimated that there are currently 3.7 million Canadians over the age of 65. With the leading edge of the “baby boomers” poised to hit retirement in 2011, seniors will soon make up close to a quarter of the population. This demographic shift will have a profound effect on our society socially and economically.

The potential for issues and disputes will increase as larger numbers of older adults face life transitions and issues of incapacity, health care, housing, finances, family and relationship concerns, possible abuse and neglect, estate planning, end of life decisions and other significant concerns. Elder mediation is a potential solution to assist seniors, their families and other stakeholders facing a maze of options and tough decisions.

What is Elder Mediation?

The Elder Mediation Canada web site defines elder mediation as follows:

Elder mediation is a cooperative process in which a professionally trained elder mediator helps facilitate discussions that assist people in addressing the myriad of changes and stresses that often occurs throughout the family life cycle. Elder mediation typically involves larger numbers of participants including older people, family members, friends and others who are willing to give support. Depending on the situation it is not uncommon to include paid caregivers, hospital staff, nursing home and or community care representatives, physicians and other professionals.

Over the past 20 years mediation with age-related issues has been emerging as a distinct specialty in the field. Elder Mediation is now being recognized internationally as an important step in the continuum of care – promoting wellness, developing prevention strategies and enhancing quality of life. The focus is on addressing concerns and issues while maintaining and strengthening the myriad of relationships critical to the well-being of the older person.