A Strategy to Reduce or Elimiminate Probate Fees.

Date: 27 Jun, 2018

HOW TO USE A TRUST TO SAVE THOUSANDS OF DOLLARS IN PROBATE FEES.

This strategy is driven by 2 primary goals.

To arrange for an orderly estate succession (what happens after you die) and minimize estate administration tax, also known as probate fees. An additional benefit can be a reduction in exposure to potential creditors.

SOME BASIC PRINCIPALS.

A “Testator” is the formal name of the person making the will, the whose death activates the will.

A “third party asset holder” is usually an institution that is holding an asset for someone. A prime example would be a bank maintaining a bank account for the testator. Another common third party asset holder is the Province of Ontario which maintains a land registry system controlling the registration of owners of real estate.

The “Attorney” in Powers of Attorney does NOT mean a lawyer, rather it is the person granted the authority to act on your behalf while you are alive.

“Probate” is the process by which the Superior Court of Ontario formally appoints someone to represent the estate, the executor or estate trustee and seals and certifies that a will is indeed a person’s last will and testament subject to a later claim.

  • The main purpose of “PROBATE” is to both formally appoint an individual as the estate trustee, also known as “executor” and, in the case of such an appointment with a will annexed, it certifies to the world that this indeed is the late testator’s last will and testament.
  • Simply put, it is the method by which, for all third party asset holders, a will is certified to be the last will of the deceased and can be acted upon.
  • However, the Province of Ontario, in return for the granting of Probate, formally known as a Certificate of Appointment of an Estate Trustee, either with or without a will annexed, will levy an estate tax roughly equal to 1.5% of the value of the assets being probated.
  • By a combination of a series of documents and transfers which are set out in greater particularity below, the need to pay this probate tax is reduced and/or eliminated.
  • In the era of million dollar homes being common place, the probate fees saved can easily exceed $10,000.00 or more. Another benefit is that it avoids the laborious and time consuming process of applying for probate in many instances.
  • Probate, especially one centered in the City of Toronto is a process that can easily take in excess of 6 months during which the administration of an estate can be suspended. Even determining what the assets are can be caught in this lengthy never never land.

The documents involved include the following:

  • Primary will. This is the will in which assets that cannot be protected from tax are subject to probate fees. An example would be a liquid asset that the testator did not want to add any additional ownership names to. Another example are registered investments such as RRSP or RRIF of which only the testator can be the owner, and it does not make sense to have a named beneficiary.
  • Secondary will. This is one of the two primary document engines that accomplish the entire thrust of this process. A secondary will is the will that deals with those assets to which probate need not apply. An example would be shares in a privately held corporation or property held in trust for the testator by others. This would include a piece of real estate owned jointly owned with others, often family members but with a trust agreement confirming that beneficial ownership remains solely in the hands of the testator.
  • Power of attorney for property. This is a crucial document and, in its absence the only alternative is an extremely expensive court application for the appointment of a guardian of property. Of course, one must recall that the essential difference between a power of attorney and a will is that the power of attorney grants power and is only effective during the life of the grantor, but a will disposes of assets and only takes effect upon death.
  • Power of attorney for personal care. This is the document that grants to the attorney the ability to make vicarious decisions for one’s health which includes residence as well as medical decisions.
  • An extensive multi page trust agreement. The other primary document along with the secondary will. In this agreement, both the beneficiaries and the trustees sign and acknowledge that the assets that are specified in the agreement, which will often include the primary residence of the testator and various liquid assets irrespective of ownership still remain solely and beneficially owned by the testator until death. Upon death, these assets fall into the secondary will (and if you recall, this is the will that is not subject to probate and probate fees) and are so distributed.
  • Transfer(s). Title to any real estate one wishes to be covered under the aforementioned trust agreement and secondary will would be transferred. Here one would typically convey a family home into the name of the parent(s) along with some of the trusted children as joint tenants. Upon the death of the last of the parent(s), title remains solely in the names of the surviving children. However, the children are acting merely as trustees and the trust agreement mentioned above confirms that the home is to be dealt with in accordance with the terms of the secondary will.
  • Trust declaration for the purposes of land transfer tax. This affidavit is required so no land transfer tax is triggered by the transfer of real estate.
  • Transfer of liquid assets. If liquid assets, such as savings accounts are to have trustees added to them as owners, these are listed in the aforementioned trust agreement and further will require transfers to be done by both the beneficiary and trustees at the institution.

We have to point out what can go wrong. Primarily, the inter-relationship between the beneficiary (usually the parent) and the trustees (usually the child(ren)). While formal beneficial ownership always remains with the donors or testator, in the event of a conflict with a child, this may require the intervention of a court to enforce the terms of the trust agreement.

The trust agreement is the lynch pin and the formal declaration by all concerned that irrespective of the transfers, the beneficial owner remains the donor, usually the parent(s). This process is not appropriate when there is no close and reliable relationship between beneficiary and trustee. However, in the instance of a close family network, especially as the donors become older, this is a practical and beneficial process for all concerned.

Also the trust agreement protects the assets from being claimed by ex-spouses of trustees or their creditors. It also permits the trustees who may own their own primary residence to maintain the capital gains exemption for everyone’s residence.

The cost is generally similar to the fees we charge in administering an estate. The probate fees are an outright saving. If you are interested in learning more about this approach please contact Nelia Senra, our estate clerk at nelia@dalestreimanlaw.com or 905-455-7300 ext. 226

Weird Will Wonders # 1

Date: 31 Jan, 2018

You must be very careful in choosing the witnesses to your will. A normal will,(in other words, not a handwritten holographic will which is an entirely different topic,) requires a will to be signed by the person making the will and in front of two witnesses who must also sign their name.

However, no beneficiary or their spouse may be a witness. If they are, to paraphrase, Section 12 of the Succession Law Reform Act “where a will is witnessed by a person to whom or whose spouse is a beneficiary, the inheritance is void as it concerns the witness, their spouse or any person claiming under either of them”. So, be careful, it is important that the witnesses are completely unrelated and also in no way a beneficiary under the will.

Weird Will Wonders # 2

Date: 31 Jan, 2018

What happens to your will if after you sign it, you marry? Unless some magic words are used in the will upon a subsequent marriage it goes poof, it disappears, it becomes void, it becomes invalid. The magic words are along the lines “I make this will in contemplation of my marriage to Kim Kardashian…” In those circumstances, your will will survive your marriage to Kim Kardashian.

Weird Will Wonders # 3

Date: 31 Jan, 2018

What happens to your will if after you make your will you get divorced? In those circumstances the will is interpreted as if the person that you divorced had died immediately before you. So, if you name your wife as the executor and the beneficiary of you will and then you divorce her, unless you use some magic words your will will be interpreted as if your now ex-wife had died just before you. It is important to note, this is a divorce, not separation.

Gift Gone Wrong

Date: 25 Jan, 2018

Elsewhere on our website we have described the 3 essential ingredients for a legal gift.

1. An intention to make the gift
2. An actual acceptance of the gift
3. An actual delivery of the gift

In the tragic case of Teixeira, a decision of the Ontario Court of Appeal, we have a gift that just fell short of the finish line.

Mr. Teixeira had, for 15 years been the ultimate good neighbour to Mary. Shortly before Mary died she made a will leaving $100,000.00 to her neighbour. She also wanted to give him a $100,000.00 gift and wrote out a cheque which was delivered to Mr. Teixeira. Mr. Teixeira went to the bank and the bank placed a hold on the cheque. Before the cheque could be negotiated, Mary died.

What actually had occurred was that the specific account that Mary had written the cheque on was $19,000.00 short. Mary had other funds in the bank, more than sufficient to cover the cheque but the bank needed her authority to cover the shortfall in the account. In the end, the bank refused to honour the cheque and Mr. Teixeira sued Mary’s estate.

Mr. Teixeira lost at trial and then lost again on appeal.

The first two steps set out above had been met but the final step of an actual delivery never occurred. Not until the cheque was placed into Mr. Teixeira’s account and the funds had cleared, would there have been an actual delivery and accordingly a completion of the gift.

One area that was not canvassed in the case was whether or not M. Teixeira had a claim of negligence against the bank itself. Did the bank contact Mary prior to her death to advise her that the specific account upon which the cheque had been written was short of funds and sought her authority to transfer enough money so as to permit the cheque to be honoured?

This case is an excellent illustration of the 3 factors that are necessary for a valid gift.

Power of Attorney – Property

Date: 16 Nov, 2016

Thumbnail-LogoThere are two types of Powers of Attorney available under the Substitute Decision Act enacted in 1992.

One is a power of attorney over property. The term “Property” can be misleading to the average lay person. “Property” does not refer to simply real estate and a home but rather anything of value that the grantor of the power of attorney may own. Also, the word “Attorney” can be misleading. The average person assumes this refers to a lawyer but that is not what Attorney means. Rather, it is the recipient of the power of attorney. The person that is being invested with power by the grantor of the power of attorney. We commonly refer to the granting of a power of attorney of property as akin to a blank cheque. You do not give away property or ownership of assets by way of power of attorney. Rather that is done by your will. What a power of attorney does do is it gives power away. It allows the recipient in most cases to make vicarious decisions on behalf of the grantor. While the attorney has an onerous fiduciary duty to the grantor, that will not do the grantor much good if the attorney is abusing the power granted to them. Or more simply put, your good friend that you trusted as your attorney may have serious legal responsibilities, but that will do you no good if they are broke.

It is also important to ensure that the attorney understands how serious their role is and how important it is especially if someone may in future look over their shoulder. Careful records and separation of assets must be kept.

It is crucial that an attorney not intermingle any of the property or assets of the grantor with their own. An attorney is entitled to receive some fee for their work but generally it is a labor motivated by responsibility. Often a familial responsibility such as taking care of your parents assets.

Most powers of attorney survive the grantor’s subsequent mental or physical incapacitation. In plain English, this means that the moment the power of attorney is signed, it begins to work. It generally does not start to work once the grantor becomes mentally incompetent.

For that reason alone, it is crucial that one pay careful attention in choosing the correct person. Not only must they be very responsible but they must be capable.

There is a way you can restrict a power of attorney to start only when you go “gaga” but you need a competent lawyer to set that up.

The risk of not doing a power of attorney is horrendous legal fees to come up with a court appointed substitute. That court appointed substitute usually is an order appointing someone as a guardian of property, such as for an incapacitated relative.

The costs are extreme, often in excess of $10,000.00 and are very laborious and time consuming.

There is the bitter irony that often, it is better to die without a will than then to become ill with no power of attorney. In no way are we advocating that one should skip doing a will but this is an exercise in explaining to all how foolish it is not to have proper powers of attorney in place.

Estate Administration Form – NEW FORM

Date: 01 Sep, 2015

Thumbnail-LogoCompleting and filing this form is a new bureaucratic step. All involved, including the Provincial Government administering it, are cutting their teeth on the process as it evolves. One of our clients contacted the information line and asked what value they should input for the real estate owned by the deceased at the date of death. The erroneous answer that they received was whatever the MPAC valuation was. This is wrong. The MPAC valuation is often below the market value. While this may save the estate 1.5% in the estate administration tax, it leaves the estate open to much more in capital gains. Remember that while the deceased up until the date of death was able to enjoy a principal residence capital gain exemption, no such exemption exists for an estate namely from the date of death up until the date of the sale of the home.

As an example, in todays over inflated real estate market, it is not impossible for a property to increase by $50,000.00 in value from the date of death to the date of sale. All of that appreciation would be a capital gains, taxed at the highest market rate, roughly speaking $12,500.00 in tax. For further details on this point, you need to consult with the estate’s accountant, but be alive to the conflict between what is in the estate’s best interest by saving a 1.5% tax rate versus an effective 25% marginal tax for capital gains.

End of Life, Hospital and Home Visits

Date: 07 Aug, 2015

Regularly, our firm is asked if we will make a hospital visit or go to a client’s home when they are not well enough to come to our offices.

While we are happy to do so, this incurs extra fees. Almost always the lawyer is accompanied by a law clerk as issues of capacity lurk in the background and the views of both a lawyer and an experienced law clerk are very important.

We have had the privilege to be entrusted with this responsibility repeatedly and we take it very seriously. Often time is of the essence and we take careful heed of the very short time lines that are often involved. It takes a delicate and sensitive hand to deal with clients who are often at the end of their lives, who have left drafting a Will or Powers of Attorney far too long, yet the necessity remains.

These are circumstances which are far from ideal and because the extra care and attention that is required and often the urgency that is involved, the legal fees are greater than the norm.

The end of life is rarely a kind or happy time in ones’ lifecycle, but it is a process that we approach with the gravity it deserves. We would be pleased to assist and for further information, contact either Fred Streiman 905-455-7300 ext. 231 or his law clerk Nelia Senra at ext. 226.

Wills and Estates – Cancelling a Will for Racism

Date: 16 Apr, 2015

Thumbnail-LogoJustice Cory Gilmore of the Ontario Superior Court recently made a decision overturning a Will that she found had been motivated for racist reasons.  In the decision of Spence v. BMO Trust Company, Justice Gilmore found that the testator (person who made the Will) had left nothing to one of his daughters because she had had a child with a man who was of a different race.

Available for the Judge, which was not by way of Affidavit evidence and which was not contradicted  in any way, was the reason for the testator exclusion of his daughter of whom he had been long been estranged from.

The Will on its face contained no such racist language.  The established law which this decision runs contrary to, is that one is not supposed to look outside the four corners of the written Will itself, and not to look at the testator’s motives or state of mind (aside from competency) when drafting their Will.

In other words, no one would complain about Justice Gilmore’s decision had the Will stated the racist reasons within it.

The estate legal community is in a tizzy over this decision in which the Judge in essence found the Will to be void and simply divided up the estate amongst the testator’s two surviving children in accordance with the terms of the Secession Law Reform Act.

It will take some time to see whether or not the decision of Spence v. BMO Trust Company is the leading edge of judicial intervention in changing Wills that perhaps they should not.

There is a legal maximum that hard facts make bad law, but this very well be an example of that.

Stay tuned as we watch to see if this is an anomaly or a trend setter.

Wills and Estates – Estate Administration Tax

Date: 13 Mar, 2015

Wills and Estates – Estate Administration Tax
Estates Administration Act

Probate Fees- New Regulations as of January 1st, 2015

On January 1st, 2015, the Provincial Government activated new regulations dealing with the collection of the estate administration tax, also known by its common name as “Probate Fees”.  This is roughly the equivalent of the 1.5% tax that the Provincial Government levies on all estate assets that need to be “probated”.

For the first time, the Provincial Government appears to be getting serious about ensuring that it is receiving its fair share when an estate is passed from one generation to another.  Amendments were also made to the Retail Sales Tax Act, in essence to make the filing of an Estate Administration Information Form mandatory and treating it as if it was the equivalent of a Retail Sales Tax Report.  This was done to give the Provincial Government the ability to enforce the collection of the tax. It is the basis for determining the amount that the Provincial Government feels it is entitled to.

NEW FORM

A lengthy and highly detailed form now needs to be completed by each estate trustee and it must be RECEIVED by the Minister of Revenue within 90 days of the granting of probate.

See link: http://www.forms.ssb.gov.on.ca/mbs/ssb/forms/ssbforms.nsf/GetFileAttach/9955E~1/$File/9955E.pdf

The assets subject to probate fees remains the same.  The difference is the reporting and the obligation upon the executor to ensure that he/she has taken all reasonable steps to fulfill their obligations and accurately report the amount passing under the Will so that the Government can get its slice of the pie.

The information form now requires the executor to take all reasonable steps to document the value of the contents.  Previously, it was not uncommon except in the most lavish of homes to assign no value whatsoever to either motor vehicles or household contents.  This on a practical basis is no longer the case.  In a recent lecture, organized by the Law Society of Upper Canada, Senior Auditors for the Ministry of Revenue indicated that they were going to take proportionality into account.  In other words, unless something is an extremely high value asset the Ministry will accept a relatively modest value.

As this is a new regime, our advice will change as the process evolves.  At this stage, the best advice appears to be the following:

Real Estate: The Home

  1. Unless it is an extremely expensive home, a reasonable valuation by a real estate agent is satisfactory.  This valuation must be in writing.

Household Contents

  1. Usually these have very little resale value.  It would be good practice for the executor to video tape the entire contents and save that video, should the auditors come calling. A reasonable, yet realistically modest value should be assigned to the contents.  Remember it is what you could sell these contents for, not their sentimental value or replacement cost.  However, one can no longer simply attribute zero to this value.

Personal Property and Jewelry

  1. The value of personal items should indeed be properly valued by an appropriate jeweler or appraiser.  Remember again that this is not insurance value or replacement cost, but what the market value as of the date of death was for the item.

Motor vehicles

  1. One should take a look at Red Book value or the value that is available through the Ministry of Transportation.  Clearly, these values are all within the reach of the Ministry.

Boat Valuations

  1.  These are available although at some expense through an online service.

Risks to Executor 

There are significant risks especially if there are asset with a significant value.  While the Estate Administration Act does not have the ability to impose personal liability on the estate trustee in the fashion that exists under the Income Tax Act, an executor who does not take care to protect him or herself, can be subject to significant fines and even imprisonment.

Concluding an Estate

Except in the closest of families, we recommend a final release and indemnification agreement be signed by the beneficiaries.  This should be done before the final distribution.  Now even greater care is needed in the documents preparation.  The beneficiaries should be required to indemnify the executor should any additional estate tax be found owing at a later date.

Comfort Letter

An estate trustee in administrating an estate with significant value after a Clearance Certificate is obtained from Canada Revenue Agency, can obtain a Comfort Letter from the Ministry.  However, while this provision exists in the regulation, details have not materialized and no one actually knows what this will look like.

Joint Assets to Avoid Probate

The regulations bring up again the difficult area of dealing with assets that are held jointly solely to avoid probate fees.  A classic example is transferring bank accounts or even the family home into the name of the testator (the person writing the Will) and a child on a joint account.  This must be handled correctly, otherwise all of these assets will fall back into the estate and will have to be included in the determination of the amount of estate administrative tax that will have to be paid.

Especially for an asset as large as a home, a primary and secondary Will should be prepared.

The lawyers at Dale Streiman Law L.L.P. have decades of experience in these areas and assist you in not only preparing a Will, but also in estate planning which can minimize the estate tax that can easily amount to many thousands of dollars upon the death.