How estates get ruined

Brothers Henry and Simon Kaptyn never got along and their father John should have known they’d never agree when it came to matters concerning his $75 million empire of real estate and investment holdings.

John Kaptyn died May 8, 2007, and the siblings have been scrapping ever since, driving the legal bills up over $6 million, which they demanded their dead father’s estate pay for. That is, until the court cried foul.

John Kaptyn’s story is a cautionary tale of what can happen when family feuds spill into the courts and sadly, it’s not unusual.

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Like the Kaptyns, your family’s fight over your money could cost tens of thousands of dollars—if not millions—and you could pay for it all. But don’t worry, you’ll be oblivious because you’ll either be dead or incapacitated while the legacy you’ve spent a lifetime building is frittered away in legal fees.

Feuds over wills and estates are clogging Canada’s courts, driven in part by the enormous wealth of aging boomers, many of them successful entrepreneurs, as well as dysfunctional family dynamics.

The first round

After arriving in Canada in 1954, John Kaptyn built a web of inter-related companies, which either owned property or owned mortgages against those properties in Canada and the U.S. They included a Sheraton Hotel in Richmond Hill and shopping plazas in Florida.

The estate of Toronto entrepreneur John Kaptyn, who died in 2007, has been dwindled by millions in legal fees by feuding heirs. (Shown with wife Doreen)

In 2006, Kaptyn decided to leave the bulk of his assets to his grandchildren. He also wanted his wife to be looked after and to make some charitable donations. The residual would go to his sons.

He left Henry’s children more than $20 million and Simon’s nearly $19 million, based on an intricate calculation of John’s complex holdings. It was as close to equal as possible, short of liquidating everything.

The will was also complicated and in two parts: one for personal holdings, the other for the business. Even more bizarrely, he appointed the battling brothers co-executors. It was a disaster.

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“Henry and Simon are unable to work together, in any reasonable and effective way,” Ontario Justice David M. Brown wrote in Jan. 2011, reviewing costs after the brothers continued their battle even though another judge tossed out their case following a two-week trial.

Enough was enough. He slapped down the Kaptyns’ demand for $4.4 million in total costs noting they’d already been given $1.1 million from the first trial.

Instead, he awarded each brother $350,000 in legal fees from the estate and $475,000 to the Ontario Office of The Children’s Lawyer, a legal branch of the Ministry of the Attorney General that represented the grandchildren’s interests. He said if the litigants wanted to continue they’d have to pay from their own pockets.

After months of dragging each other to court and running up millions in legal costs, the brothers were back at square one.

They should have seen it coming. In 2009 Justice Brown rocked legal circles in another, unrelated, decision saying it was time the losers paid their own costs in protracted estate litigation: “Parties cannot treat the assets of an estate as a kind of ATM bank machine from which withdrawals automatically flow to fund their litigation.”

When the gloves come off

Similar battles are brewing all over Canada. The greater the value of the estate, the greater chance of litigation arising as disgruntled beneficiaries claim unfairness or undue influence by siblings or other family members.

“I’ve seen cases that literally exhausted the estate in paying lawyers,” says Justice Brown. “They take battles they have had in the past and the estate becomes a forum where the dispute can play out.”

Estate lawyer Ian Hull, partner at Hull and Hull in Toronto, is co-author of Advising Families on Succession Planning: The High Price of Not Talking, a book aimed at counselling lawyers on how to deal with clients.

“There’s a lot of money and people can afford to take a risk escalating things,” he says. It becomes more about “one kicking sand at the other when they were six and never letting it go.”

With crowded dockets, courts have responded by diverting cases to mandatory mediation in Toronto, Windsor, and Ottawa. While it isn’t cheap, it’s tens of thousands of dollars less than court, where a trial can rack up $500,000 in lawyers fees. There’s also more flexibility to work out solutions and it doesn’t risk invalidation of the entire will on a point of law. More important, mediation can finish long before an initial court date, giving a fast path to closure.

“In court, we can only deal with the law,” says Justice Brown. “We’re not social workers, or therapists. We can’t restore human bonds.”

Pulling punches

While the best advice is to sort out the family dynamics while everyone’s alive, the reality is the passing of a parent can be a triggering event, says lawyer Felice Kirsh, a partner with Schnurr Kirsh Schnurr Oelbaum Tator LLP, and a specialist in estate and trust, and mental incompetency litigation. She’s also a mediator.

Take aways

• Avoid excessive re-writes of your will
• The more complex your will, the more likely it will be challenged
• Be clear about how your estate will be divided, while you’re fully mentally capable
• Get your children, and other family members, to buy into your will’s terms
• Realize money isn’t always at the root of the conflict
• Use facilitators to bring emotional conflicts to light early
• Help heirs understand the law requires support for all dependents, including step-parents

Litigation revolves around three areas: mental or physical incapacitation, requiring a power of attorney for care and assets; when to prescribe no further medical intervention and the act of dying itself; and the intent of the will after death. In some cases there are allegations that decisions were made under undue influence from others or the person who made the will was in a diminished state of mind and unable to make a rational decision.

In power of attorney cases, the most common allegations are misappropriation of funds, refusal to disperse funds, or disagreement over what level of care an incapacitated parent needs.

The next biggest sector of conflict she sees is over a second spouse, who often comes along when the children are adults and is included in the will at their expense. Even more contentious is when the children from the first marriage are disinherited.

In most jurisdictions the law requires the estate provide for dependants, which usually means spousal support or child support payments, including support for a disabled adult child, are made from the estate.

Break it up

Lawyer Kimberly Whaley from Whaley Estate Litigation, past chair of the Ontario Bar Association trusts and estates executive, and current member of the Canadian Bar Association’s elder law section executive, cautions that what’s done today may not be right for tomorrow.

Life is uncertain. Between the onset of cognitive diseases and fear that those close by are exerting undue influence, there are a dozen ways for the dukes to go up, Whaley says, even if there’s a legitimate will in place.

“I deal with this all the time,” she says, adding parents, who know the personalities in their own families best, should get everyone’s buy-in beforehand.

Dr. Barbara Landau, a Toronto area lawyer, psychologist, and mediator at Cooperative Solutions who specializes in family counselling, suggests convening a family conference while you’re alive and can help defuse conflicts.

“I had a case the lawyers brought to me involving two sisters, one had done well, but the other was disabled and unable to work,” she said. The siblings fought over their mom’s estate but the root of the conflict was the disabled sister’s feeling of being unloved.

“She felt the other was favoured,” says Landau. Once the sisters realized where the issue was, they came together and worked things out.

Having a frank conversation about your assets and the contents of your will while you’re alive can seem awkward, especially if one of the beneficiaries starts it, she said.

“But bringing in a neutral third-party can create a flexible plan and initiate a process to heal the different relationships which, in the long run, are far more important than the finances.” Ian Harvey is a journalist whose work has appeared in The Globe and Mail, Toronto Star, Zoomer, and Reader’s Digest. This article originally appeared in Canadian Capital.