Garnishment: When a Beneficiary’s Debt Becomes an Issue for an Estate

When a beneficiary of an estate is a “judgment debtor,” meaning the court has ordered a debt payable to a creditor, can the creditor come after the estate for the beneficiary’s money? Like many legal responses, the answer is – it depends.

The legal process whereby a creditor can collect what is owed to them from a debtor by intercepting the debtor’s property/assets from another source is called “garnishment.” There are specific formal procedures surrounding garnishment with respect to notice given by the creditor, the rights and obligations of the “garnishee,” the source where the debtor’s property is being intercepted (i.e. the estate), and specific deadlines which are statute-based, set out in the Rules of Civil Procedure.

A creditor is only able to garnish from a beneficiary’s interest in an estate if the beneficiary’s interest can be considered a “debt” of the estate, that is, that the estate is deemed to owe the debtor, and this determination is based on case law. For example, a Will which sets out that there is to be an outright distribution of money to a beneficiary which has not yet been paid out by the estate, is considered a debt (i.e. presumably a monetary legacy).  On the other hand, it is unclear in the case law as to whether a beneficiary’s “unvested” interest in an estate (i.e. an interest held in a discretionary trust) can be considered a debt payable to the beneficiary and garnishable by the creditor because the trust property would not be in the beneficiary’s hands or control as yet. Also, the case law has different answers depending on the type of estate asset looking to be garnished by a creditor – for example, there are cases where a bank account is garnishable but an RRSP is not.

When an estate trustee is served with a notice of garnishment from a creditor relating to a beneficiary of the estate who is a judgment debtor, the estate trustee should proceed with extreme caution. On the one hand, if the estate trustee releases a beneficiary’s property to a creditor who is not entitled to the property, the estate trustee could be held personally liable by the beneficiary. On the other hand, if the estate trustee does not pay out amounts owing to a rightfully entitled creditor, then the estate trustee could be held personally liable by the creditor. Estate trustees put in such situations should seek legal advice as to what his or her obligations are.

By: Karen A. Forhan

The Planning Surrounding Registered Education Savings Plans

A Registered Education Savings Plan is a way to save money for a future student’s post-secondary education in a way which allows for not only tax-deferral but also for government contributions towards that future student’s (“beneficiary’s”) education proportionate to the contributions made by the “subscriber” of the RESP.

A Registered Education Savings Plan (RESP) is a contract between the subscriber and a promoter (the bank or other financial institution holding the RESP). The subscriber (generally, parents) can contribute to RESPs as much as they want on an annual basis but the total limit for contributions is $50,000.00 per beneficiary – contributions made beyond this limit become taxable. The subscriber is the only one with legal authority to direct withdrawals from the RESP while he or she is alive.

What happens when a subscriber becomes incapable? If the subscriber has a continuing power of attorney for property in place then the appointed attorney may be faced with the question of whether or not to continue contributing towards the RESP. As an initial step, the attorney for property will want to review the contract between the subscriber and promoter, and should also review the terms of the power of attorney itself. The attorney should seek legal advice to assist with this process. If there are no restrictions in the contract and if the RESP is not specifically mentioned in power of attorney, it may be to the attorney’s discretion as to if he or she should continue contributing to the RESP on the incapable person’s behalf. Even if this is the case, the decision to contribute (and how much) would need to be based on the incapable person needs, care and support, as the attorney’s primary concern is to ensure the incapable person’s assets are utilized to satisfy his or her welfare.

How RESPs are dealt with when a subscriber passes away depends on the circumstances. If there are joint subscribers (i.e. if two parents are subscribers of an RESP), then if one person passes away, the other will automatically continue on as the sole subscriber.

The RESP contract between subscriber and promoter will indicate whether or not the plan ends when the subscriber passes away or if the plan can be continued with a successor subscriber. If the plan can be continued, the contract may set out if the subscriber is permitted to name a successor subscriber, if the subscriber’s personal representative can act as the successor subscriber, and may also set out requirements or restrictions on successor subscribers.  Most plans will allow for a successor subscriber to be appointed by the subscriber and if so, this can be done by appointing the successor subscriber in the original subscriber’s Will.

On a subscriber’s death, there may be questions around whether the property held in the RESP reverts back to the subscriber’s estate or if it beneficially belongs to the beneficiary of the RESP. Including a specific RESP clause in a subscriber’s Will can be helpful not only for the purpose of naming a successor subscriber, but also for the purpose of creating certainty around how the subscriber intended the RESP to be dealt with on his or her death, which can prevent some confusion, and in the worst-case scenario litigation, from arising later. If you are a subscriber of an RESP, consider reviewing the terms of the contract with the promoter (financial institution) to find out what the terms allow for in succession planning and discuss with your estate planning lawyer how to properly deal with your RESP in your estate planning documents.

By: Karen A. Forhan

Capacity Assessments Going Online

With an aging population, lawyers who assist clients with making Wills will now more frequently need to make determinations about whether or not a client has the capacity to make a Will. To be capable of making a Will involves understanding the relevant facts and appreciating the reasonable and foreseeable consequences of making or not making a decision when it comes to the Will.

It is well-understood that capacity is a fluid concept – just because someone is diagnosed with dementia does not necessarily mean they are incapable. A person’s capacity is task and decision specific and depends on the person’s state of mind. The lawyer taking instructions from a client will want to see if the client has a clear and consistent rationale for their estate plan decisions. When lawyers have doubts about a client’s capacity, or if a lawyer feels that there may be family members or others (i.e. disappointed beneficiaries) who may question the person’s capacity to make the Will in question, they may ask the client to obtain a letter from his or her family doctor regarding his or her capacity.

To date, doctors have used certain standard testing practices for testing a patient’s capacity such as the Montreal Cognitive Assessment (MoCA) and the Mini Mental State Exam (MMSE). Both MoCA and MMSE are brief cognitive screening tools which test for areas such as memory, language, visual-spatial ability, orientation, calculations, and concentration. Both tests provide the patient with a score out of 30 –  a score of 26 out of 30 being considered “normal.”  These tests are relatively short to administer (between seven and ten minutes) and are conducted by medical professionals.

At the University of Western Ontario, Dr. Adrian Owen and the neuroscience lab has been working on studying how cognitive assessment can be enhanced using web-based tools by creating computerized tests that can be taken entirely online, such as the Cambridge Brain Sciences platform. The online assessment produces a report which provides a summary of how the test-taker scores relative to other people of the same age/demographic – for example, the report could say the test-taker performed better than 80% of people in their cohort. This is different from the pass-fail method of tests such as MoCA or MMSE, which do not provide this type of comparison.

Because of the nature of online testing, there is data that can be collected which is not possible through the standard paper and pencil tests, such as testing response time to questions.

Unlike traditional tests, online testing can create more definitive results to classify test-takers with marginal scores.

As online testing can be administered anywhere, the possibility now exists for a lawyer to have a client take the online test without leaving the lawyer’s office The question is whether the lawyer’s office is the most appropriate place for such testing to occur. For example, what if the client’s report does not produce a clear and obvious result, such as if a client scoring 40% worse than people in their cohort, what does the lawyer do from there? Presumably, the lawyer would then still need to ask the client to go to their family doctor or – better yet – a qualified capacity assessor to obtain a further assessment. If the test cannot be analyzed by the lawyer sufficiently, then it may be moot to offer that the client take the test in front of the lawyer without medical professional assistance and without corresponding results from other cognitive assessment testing.

Nonetheless, computerized capacity testing is a positive development, as capacity is becoming all the more relevant and needed with today’s aging population.

By: Karen A. Forhan