Estate planning usually focuses on avoiding or minimizing tax upon death. However, another significant cost that is often overlooked is the cost of estate litigation. Estate litigation is costly, both financially and emotionally, for those involved.

When planning an estate, some factors to look out for are second or third marriages with children or step-children, estranged children or one child handling finances of an elderly or incapacitated parent where there are other siblings. The three main areas in which estate litigation problems can arise are The Wills Variation Act, jointly held assets and powers of attorney.

The Wills Variation Act

In general, a person has the freedom to dispose of his or her estate as they see fit. However, this right is not absolute. The Wills Variation Act (the "Act") is a statute designed to protect the family of the testator when a court is satisfied that the testator did not make adequate provision for the maintenance of a spouse or child. In those circumstances, the court may intervene and redistribute the estate.

It is important to note that this remedy is only available to a spouse or child. A spouse includes legal and common-law spouses of either sex, including same sex marriages. A child of the testator includes adult, independent children, including adopted children. The Act does not apply to step-children of the testator.

There is a strict 6-month limitation period to file a claim under the Act. The time begins to run from the date of the grant of probate. There are generally no exceptions, and if the claim is not filed, the right is lost.

If a claim under the Act goes to court, it must first be decided by a judge whether "adequate provision for the proper maintenance and support" for the spouse or child has been made under the Will. The judge will decide this issue from the viewpoint of a "judicious spouse or parent" and will consider factors such as the situation of the spouse or child and the standard of living enjoyed prior to the death of the testator. If a judge finds that adequate provision was not made, then he or she can vary the Will.

In varying the Will, the court will award what it thinks is "adequate, just and equitable in the circumstances." The court will consider the legal and moral obligations the testator owed to the spouse or child, with legal obligations taking priority. For example, legal obligations are those which the law would have imposed on a person during his or her lifetime if the question of provision for the claimant had arisen. In the case of a spouse, this may include a determination of maintenance or share in the matrimonial home upon separation or divorce. In the case of children, this may include child support.

Moral obligations, on the other hand, are society's reasonable expectations of what a judicious person would do in the circumstances, by reference to contemporary community standards. Moral obligations apply to dependent spouses and children, such as a disabled spouse or child, and even to an independent adult child. The size of the estate will be a key factor in determining moral obligations, particularly with respect to independent adult children. The Court will also consider what the claimant has received from the testator outside of the estate, such as gifts given by the testator during his or her lifetime.

There are several strategies that can be used to minimize the impact of potential problems. One option is to reduce the size of your estate. For example, "inter vivos" gifts (gifts during the lifetime of the testator), trusts, jointly held assets and designated beneficiaries for life insurance policies or RRSP's are all vehicles designed to keep assets out of your estate. You should consult a lawyer for more information if you are considering any of these options.

If, at the time of preparing a Will, you decide that you want to exclude a child or spouse, it would be prudent to document your reasons in an explanatory memorandum. As long as the reasons stated in the memorandum are true, and there is a rational connection between the reasons and the exclusion, the Court will usually uphold the testator's decision.

You cannot contract out of the Wills Variation Act, but a marriage or separation agreement can be helpful. Some have entered into an agreement with their child or spouse to the effect that the spouse or child will not challenge the Will in exchange for receiving an advance on their inheritance. The Court will not enforce such an agreement. However, the Court will consider the provisions of a marriage agreement in some circumstances.

There are also other ways of challenging the Will of a deceased, including a challenge to the mental capacity of the testator, a challenge to the technical aspects of a Will (such as the execution of the Will), and challenging terms of the Will on the ground of ambiguity. Contesting a Will in this regard is generally expensive and the legal costs usually come out of the Estate. Accordingly, it would be wise to consult a lawyer when drafting your Will to prevent some of the issues discussed above through proper advice and preventive legal drafting.

Jointly Held Assets

Holding assets jointly with one or more people can be a useful device, although it can also cause problems. Almost any property can be held jointly, such as bank accounts, land, vehicles and brokerage accounts.

The major feature of true joint title is the right of survivorship. If the parties have created true joint title, then title passes to the surviving party or parties upon the death of one of the owners. This distinguishes joint title from another ownership arrangement called a tenancy in common. With a tenancy in common, two or more people own the property in their respective proportions, but there is no right of survivorship. In a tenancy in common, when one owner dies, the deceased owner's share of the property ends up in their estate.

The right of survivorship is the feature of joint ownership that is useful for estate planning purposes. Upon death, the assets are "transferred" to the surviving owner outside of the Will.

The potential problems that accompany jointly held assets also arise from the right of survivorship. For example, the asset may have been held in joint title for convenience only, and the testator actually meant for it to be divided between the beneficiaries stated in the Will.

Beneficiaries under the Will can challenge the survivor's title to the property. This is often done in the context of a Wills Variation action; however, it is not restricted to such actions. Any beneficiary under a Will can challenge the transaction, as can the executor, with the goal being to get more assets into the Estate.

The Court will attempt to determine the testator's intention, which can be difficult since the testator is no longer around. The ordinary rule is that where the funds or property are provided entirely by the deceased, the funds or property reverts to the donor upon a "resulting trust". A resulting trust means that the survivor holds the legal title to the asset in trust for the Estate. In other words, the Estate owns the beneficial title to the asset.

The ordinary rule is superseded when the transfer involves one between spouses, or from parent to child. This is called the presumption of advancement. It is a legal assumption that, because it was a spouse to spouse or parent to child transfer, the donor intended the recipient to have the beneficial as well as the legal title. The presumption may be rebutted by evidence of the donor's intention.

There is also the doctrine of undue influence, which applies when one person has the ability to dominate the will of another, whether through manipulation, coercion, or outright but subtle abuse of power. With certain relationships, the Court will make a presumption of undue influence on the basis that some relationships inherently give one of the parties an element of power, for example solicitor-client or parent-child. Once again, the presumption is rebuttable.

The best strategy to avoid these costly litigation issues is to document your intention at the time you take a course of action in planning your estate. This will save considerable time and expense in the end. Other ways of avoiding these issues are deeds of gift or declarations of trust, and you should consult a legal professional if you are considering either option.

Powers of Attorney

There are many good reasons to have a power of attorney but, once again, problems can arise if you are not informed. The basic rule with respect to these instruments is that they must be exercised for the benefit of the donor.

One of the problems associated with powers of attorney is that the attorney's use of the power may be challenged after the death of the donor. In this case, the challenge can be difficult to defend due to the informal arrangements often made. This can lead to difficulty in reconstructing years later why the power of attorney was used in a certain way.

The best strategy to avoid problems later is to document everything, particularly the reason for the transaction. If you are an attorney, it would be a good idea to keep a paper trail that can be used to refer to later.

In summary, the best advice is to take the time and expend the cost now to avoid costly, lengthy and emotionally taxing litigation for your heirs in the future.