By: Rahul Sharma, Partner, Fasken Martineau DuMoulin, Toronto
An article in the Wall Street Journal published at the end of last month caught my eye. The article, entitled: “Why Are So Many Adults Cutting Off Their Parents?” (Why Are So Many Adults Cutting Off Their Parents? – WSJ) explained that family estrangement is on the rise. The article’s author, Elizabeth Bernstein, cites a 2020 book by sociologist Karl Pillemer entitled Fault Lines: Fractured Families and How to Mend Them for the statistics that 10% of the U.S. population is estranged from or has severed ties with a parent or child, and 25% of the population is estranged from a close relative.
I could not find any Canadian data on the level of family estrangement within our population. But it would not surprise me if the Canadian statistics were not too dissimilar from the American figures.
Now juxtapose these figures to those concerning the “great wealth transfer”, which may be one of the more significant economic and social developments of the coming decades. U.S. data from Cerulli Associates provides that approximately USD $124 trillion will transfer between generations (and to charities) from now until 2048. The corresponding Canadian figures are lower, but I nevertheless continue to see research suggesting figures in excess of $1 trillion.
The article struck me because the traditional basis of succession planning has been the transfer of assets—including corporate and business interests—from one generation to the next. So much of the trust and tax planning that I do everyday is hinged to the assumption that the successor of a parent’s wealth will be that parent’s child. There is no question of this in a fixed heirship jurisdiction. But here in Ontario, with testamentary freedom at play, the considerations are different. Assuming a parent is estranged from an adult child who is in no way financially reliant or dependent on the parent, there may be no impediment to that child being left out of an inheritance.
Estrangement is not new. As practitioners, we see and deal with it everyday in our practices. Families approach the issue in varied ways; some are open, others more sensitive. The only universal truth seems to be the first line of Tolstoy’s Anna Karenina.
Which brings me to a small, but very relevant, list of (perhaps too obvious) items to consider when dealing with estrangement in estate planning:
- Wills and Powers of Attorney: You will need valid Wills and Powers of Attorney if you are estranged from someone, particularly a child, and you do not want to run the risk of that person inheriting any of your assets. This seems obvious, but a 2023 Angus Reid survey found that one-half of Canadian adults do not have a Will. This figure was unchanged from five years earlier. The percentages of Canadian adults with a Will differ by age, with only 13% of adults over 65% lacking a Will, whilst 49% of Canadians between the ages of 45 and 54 reported as not having a Will. The figure reduced to 34% for adults between the ages of 55 and 64. November is coming and it is “Make a Will Month” in Ontario. If you are reading this and do not have a Will, make it a priority item to strike off your “to-do” list before the end of the year.
- Choice of Executor and Attorney: Another seemingly obvious point, but you likely do not want someone with whom you are estranged managing your estate when you are no longer around or able to do so. Growing estrangement statistics means that an increasing number of Canadians may need to turn to friends or even to corporate and professional trustees for assistance in managing their estates and/or as substitute decision makes. There are excellent corporate and professional choices in the marketplace. But many Canadians will still want to name their friend as executor. The friend needs to understand that serving as executor can be a tough job, potentially if there is some form of estrangement with relatives in the mix. I have seen discussions regarding compensation go every which way. But they still need to be had.
- The Beneficiaries: This is perhaps the most obvious point: you may not want someone (even a child) from whom you are estranged to benefit from your estate. With testamentary freedom comes the likely choice of naming your beneficiaries. In cases of estrangement, these can be friends or even charities. Families are increasingly considering setting up donor-advised funds or their own private foundations. These are valid considerations. Where philanthropy may be involved, there are excellent resources in most communities across Canada that can be accessed.
- Business Succession: If not to your children, then to whom? Third party sales are an option. But there may also be other alternatives, including sales to non-family management. Part of the push for better tax rules for management buyouts was to help keep a business in the hands of certain individuals—key employees—who helped to build it and who want to take over its ownership after the exit of the controlling family. Employee ownership trusts come with complicated rules, which might, in part, explain why they have not been particularly well taken up. More can and should be done in this area.
The Wall Street Journal article also made me consider whether wealthier families, including where a family business is involved, are more likely to avoid issues of estrangement. I could not find any responsive statistics or data. What I did encounter, however, were figures suggesting that family disputes may be on the rise in modern families.
So, it seems an open question as to whether a business keeps families together, risks driving them apart, or simply increases the risk of conflict amongst family members and generations. A logical view may be that a member of a wealthy family does not tangibly benefit from being estranged from the family. Put differently, such an individual may have more to lose from being distanced from the family than from staying tied to the family and to potentially later fighting for some share of the family wealth. If that is the case, then it may not be accurate to consider family wealth or a family business, at least in this sort of case, as a glue that helps to bind the family together. It may instead be best viewed as some form of sticky tack that holds things together for only so long before it is either pulled off or dries out. Better clarity is needed in such families and may be available through proper planning, including governance planning, that establishes clear roles, boundaries and guidelines for family members, whilst also providing direction for the family and its business.
Suffice it to say that estrangement appears to be an embedded and growing reality in estate and succession planning. Like everything else in this industry, it can and must be dealt with properly and proactively.
