I plan to keep  this area of my site up to date with news of recent case law, legislation of interest and articles on various topics.  Visit the site regularly to keep yourself up to date.  If you prefer, send me your e-mail address and I will forward to you the items which are added to this area.  For previous topics, please visit our Archived secion.

May 20, 2003

FAMILY LAW

The “as and when” pension division

            We saw in the last segment that some pensions are simply too large to divide at source.  The equalization process would result in an amount owing by one of the spouses which he or she could not satisfy even by transfer of all of the assets to the other spouse. 

              If the pension is under federal legislation, a simple solution is available.  Once the pension has been valued by the actuary and after some adjustments it can be divided between the husband and wife in accordance with a court order or a signed agreement between them.   Two separate funds are established, one for the pension holder and the other for the spouse.  The fund for the spouse is locked in and cannot be accessed until such time as the pension itself is accessible.  Note that you cannot necessarily rely upon the valuation provided by the employer as it may be very much different that the value for family law purposes.

              Unfortunately, provincial legislation in Ontario has not kept pace with federal legislation.  In this province, it is not possible to split an entire pension.  Instead, if parties wish to divide a pension, they must first have the asset valued and then negotiate a complicated agreement whereby the pension payments will be divided at source when the holder wishes to start drawing the pension.             The agreement must then be submitted to the pension administrator for acceptance and approval as the administrator will be the source of the payments when they commence. 

              Negotiating the terms of an agreement is so full of pitfalls that lawyers are reluctant even to make the attempt.  Some of the many issues to resolve are the following.

               ·         What happens if the pension holder dies before starting to draw the pension?  How can the rights of the non-holder be protected?

                ·        What happens if the pension holder dies shortly after starting to draw the pension, thereby terminating the payments?

               ·         Can the pension holder retire earlier or later than originally planned, thereby starting payments to the other spouse at a different time than anticipated?

               ·         What happens if the pension holder remarries?  What are the rights of the new spouse?

               Pension division is an extremely complicated area and expert advice is essential.  Do not rely upon the employer statements as they may bear no relationship to the actuarial value of the asset.

FINANCIAL PLANNING

Long term care insurance

              Many individuals either cannot obtain disability insurance or have plans which are inadequate to protect against debilitating illness.  Others fear the possibility that a parent may require extended care which will be a significant cost to them.  Around the clock in-home care can amount to more than $100,000.00 a year.  Institutional care can be $50,000.00 or more.  For these individuals, the solution may be long term care insurance.

              Long term care insurance is generally available to persons between the ages of 18 and 80 who are unable to perform any two of the activities of daily living: bathing, eating, dressing, toileting, continence or changing body position or persons who have suffered cognitive impairment (inability to think or reason effectively).    The plan may provide for either in home care or care within an institution.

              Policies vary greatly in their terms and cost.  Many of the considerations which apply to disability policies also apply to long term care.  Generally there is an elimination period during which no benefits are payable.  This can be anywhere from 0 – 180 days.  The maximum amount of the daily benefit and the duration of the care are the two factors which most affect the premium.  Since the elderly person is far more likely to require such insurance, it goes without saying that the earlier the policy is put in place, the lower the premium.

              This is a fairly new product and anyone considering the placement of such coverage should consult with knowledgeable persons in the industry and obtain several quotations.  Many of the large insurance companies have a great deal of information on their web sites.  As an example, you might take a look at

www.clarica.com/e/learn/Health/LCLongtermCare.asp

Next Segment:               Critical Care Insurance

ESTATE PLANNING

Executors Compensation

            One topic of interest to all of those who are either making a will or administering an estate is the subject of compensation for executors.  In this segment, I will answer some of the most frequently asked questions.

17. How much do executors receive for administering an estate?

1. There is no statutory rule for the amount of executor’s compensation in  performing all of his or her duties in completing the administration of the estate.  By convention,  the executor is entitled to compensation in an estate of “average complexity” of 2.5% on realization of the asset and a further 2.5% on disbursement for a total of 5%.  If the amount of compensation is not agreed, there is a procedure known as “passing of accounts”, whereby any interested party may have all of the accounts reviewed by a judge.  This procedure is considered essential in complex estates or those which extend over a lengthy period.

         In addition to the initial compensation, an executor and trustee is also entitled to an ongoing management fee of around 0.4% of assets under administration.

17. What do trust companies charge?

A.      Fees of trust companies vary but  tend to be slightly lower that the normal executor’s fees.   Usually the fees of the trust company are on a sliding scale so that the percentage is reduced on larger estates.  It is important to note that trust companies have minimum fees which make their appointment inappropriate for modest sized estates.  Trust companies which are appointed as executors usually have the testator sign a compensation agreement in which the fees are clearly set out.

17. What do lawyers charge for administering an estate?

1. Lawyers charges in estate matters are divided into two segments.  Firstly, there are the strictly legal matters which are involved with obtaining probate and completion of the various forms required to permit the executor to deal with the assets.

            Many executors request that the lawyer do much more than the strictly legal work and assist the executor in performing his or her duties in realizing and disbursing the assets, maintaining proper accounts and filing the necessary returns.  Before the lawyer takes on the task, he or she will discuss with the executor exactly how the fee will be determined.  The amount of the fee is a part of the executor’s compensation and is not an additional charge to the estate.

Q.  Are executor’s fees taxable?

A.             Yes.  What did you expect?

Next segment – more on compensation and accounts.