The fraud is "a charitable nightmare that has exposed serious flaws in the oversight of inheritance." Writing in the March 5 issue of The Globe and Mail, that's how Jacquie McNish and Paul Waldie describe a trustee's plundering of a $24 million estate, most of which should have gone to charities.
Barry Landen, a trusted associate of deceased mining magnate Paul Penna, was sentenced to 14 months in jail December 20 for violating court orders intended to halt his seven-year raid on the Penna estate. Penna's widow received no money from the estate before she died, and according to the reporters, the charities have given up hope of receiving their bequests.
Negligent team
Besides his trustees (Landen, his widow Lorraine Penna until advancing Alzheimer's rendered her incapable, and Agnico chairman Charles Langston) Penna appointed an expert, apparently trustworthy team - a lawyer, an accounting firm, bankers and brokers - to manage and safeguard his money. Yet none of them questioned Landen's withdrawals.
"That so much could disappear for so long without anyone noticing is an alarming comment on the vulnerabilities of an estate system that will soon be handling what is likely the largest intergenerational transfer of wealth ever seen in this country," the reporters conclude.
Avoiding probate cost millions
After Penna's death, estates lawyer Catherine Roberts of Macmillan LLP, the legal firm that had prepared his will, met with the trustees. Ms. Roberts filed a court affidavit stating that she had recommended the will be probated, counsel that the trustees declined.
That may have been the crucial mistake. Skipping probate is a poor idea in almost all circumstances, says charity law expert Mark Blumberg. "Some donors work hard to try to avoid paying probate even though probate in Ontario for estates over $50,000.00 is only 1.5% [of the estate value]."
In the Penna case, avoiding probate saved the estate $360,000. But it also meant that neither Lorraine Penna nor the charities received their due ($1 million and $23 million respectively).
Fred Tayar, a Toronto lawyer now representing some of the deceived charities, told the Globe and Mail that only a few of the organizations were told of the bequests in advance. Many of them were so inexperienced that they didn't question several years of delay.
Don't let this happen to you
There are a couple of things charities can do, advises Adam Aptowitzer, also a specialist in charity law. The first is to work with donors in advance and ask to be advised if they are named in someone's will. The second is to help set up meetings between prospective donors and professional trust companies.
"It is far more difficult to pull the wool over the eyes of a professional institutional co-trustee than someone who doesn't know the rules," he points out.
Gift Planning in Canada editor John Webster Hochstadt agrees with the preventive approach. Penna could have protected and preserved his estate by informing the charities of his intentions and giving them copies of his will, he believes.
"We understand there are many reasons why donors keep their bequest intentions to themselves, but in a universe where the courts, the executors, investment and banking executives, and the family cannot be relied upon with certainty, a registered charity employing a skilled gift planner may be the donor's best hope for fulfillment of his or her wishes," he explains.
"Donors with large estates and charitable intentions should view the charity as their most reliable and ethical resource, and make use of it. The charity, in turn, must protect its interests and the donor's by demanding responsible estate administration, through the courts if necessary."
In short, educate your donors, steer them towards professional executor services, and never assume that your late donor's associates will respect his commitment to your cause.
Read the full story in The Globe and Mail. at http://www.theglobeandmail.com/report-on-business/the-dark-side-of-canadas-inheritance-system/article1930994/.
