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The Beneficiary: “Kate” is a 62-year-old bookkeeper in Calgary. She’s single without kids and the eldest of three siblings. Despite the geographic distance between them, she and her youngest brother are co-executors on their recently deceased father’s will.
The Inheritance: Kate and her siblings received almost $900,000 to be divided equally, minus lingering debts. “My middle brother had already borrowed against his share in advance,” she says. While the eldest and youngest siblings were generally good at managing money – which is why they were the chosen as executors to begin with – the same isn’t true for their brother, a notorious spendthrift and poor financial planner. “He has some mental-health issues where sometimes he can’t control himself,” Kate says.
The challenge, therefore, is this: How can two good-with-money siblings manage the situation at hand and provide for their brother without building resentments along the way?
What she learned: Kate’s mother’s earlier passing made the business of inheriting look easy – because it all went to Kate’s dad. “I work with numbers and money, so I thought I’d be good at this,” says Kate. “When dad died and I had to actually be executor, I was amazed how much I didn’t know – and what it all cost.”
Among the mounting bills were estate invoices, fees, taxes, funeral expenses and probate costs. Altogether, Kate dumped upward of $50,000 onto her credit card thinking – mistakenly – she’d be promptly reimbursed from the bank account of her father’s estate.
But while having two executors were great when it came to decision-making, it wasn’t so great when it came to dealing with red tape at the bank. “To get the bills paid, they wanted us to both come into the branch together every month.”
Easy peasy if you’re neighbours, perhaps, but Kate’s brother lives hours away and Kate doesn’t drive. Moreover, they both work 9-to-5 jobs that made meetings at the bank during business hours very difficult. “Eventually we had a system where I’d write a cheque on the estate of the account, mail it to my brother, who’d [sign it and] mail it out again.” Needless to say, efficient it was not, and emptying the estate account became necessary.
Though their father’s plan wasn’t convenient, it was detailed and specific, which helps a lot in their situation. “It’s written in the will that our youngest brother shouldn’t get all the money at once,” says Kate, who’s grateful to have their father’s wishes to cite every time her brother wants an advance. For some goodwill going forward, the co-executors opted to forgive their brother’s debt and share the estate three ways. “We know he needs the money more than we do,” she says.
What she did with it: Of the money that finally landed, a whole year later, Kate first finally paid off her credit card bill. Next, she paid off the mortgage on her condo and put the rest into her RRSP for retirement. “It’s really nice to be working now because I want to rather than because I have to,” she says. “That’s a pretty great feeling.”
While their father had the best-laid plans, reality unfolded slightly differently. “Dad wanted my brother set up with a trust, as his lawyer suggested, but in actuality it was expensive and complicated and didn’t make any sense.”
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Drafting a trust, she learned, would cost at least a few hundred dollars at absolute minimum (and can climb up to five figures in complicated cases). Once operating, the trust would have to pay management and administration fees and annual taxes – in Canada, trusts are treated as separate taxpayers who pay up to the highest marginal rate.
All this to say her brother’s relatively small inheritance wasn’t worth the effort and money it’d cost to maintain, so the family decided to take a different route. “We set up a new bank account, in GICs in my name, and I pay him out a portion every year,” says Kate. If all parties stick to the plan, the payouts will last until her brother is old enough to receive OAS.
It’s been so far, so good on their arrangement. “If he asks for more money, which he has a few times already, I just say these are dad’s wishes and that’s worked,” says Kate, who’s not particularly confident about the set-up but can’t imagine a better one just yet. If The Globe’s readers have any ideas, Kate’s keen to hear them.
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