Here is our will instructions and questionnaire. This is an excellent starting point in the process of you understanding what the documents entail and the information we need.
The law with respect to Wills is largely set out in The Succession Law Reform Act. Ontario is a strict compliance jurisdiction, meaning that for a Will and many other steps associated with it to be valid, one must strictly comply with all of the provisions of the law.
This is in contrast with other jurisdictions such as British Columbia in which a near miss may very well score.
Cancelling or revoking a Will may only be done in accordance with Section 15 of The Succession Law Reform Act. There are only a few ways that this can be done and they are quite limited.
- Marrying after the date of your Will, unless your earlier Will contains magic words saying that this Will is made in contemplation of my marriage to x.
- Making another Will.
- In writing, specifically declaring your intention to cancel or revoke your earlier Will and it must meet the same formalities of making a Will, namely being in writing and witnessed by two persons or being completely in the handwriting of the person who wants to cancel their Will or;
- Destroying a Will by the maker of the Will or by someone else in the testator’s presence and at their direction. Burning, tearing or otherwise destroying a will are acceptable.
At our office, we often ask our clients to bring their old Will with them which we shred after the Will has been executed.
Presumption of Resulting Trust #2
Palm Tree Justice Gone Wild
Just because you are the named Beneficiary of a RIFF or an Insurance Policy, you may not be
I refer our readers to an earlier blog article title presumption of resulting trust “When is an Owner of a Bank Account not an Owner?” To briefly summarize that blog article, if one is added as a joint bank account holder only as a banking convenience, upon the death of the other (usually the parent) the surviving adult child is not the real owner of that bank account.
This judge made law makes sense and is fair. However, after the Supreme Court of Canada decision in Precore, which reaffirmed the presumption of resulting trust, in this author’s view, the judicial train has fallen off the rails. In 2020, the Ontario Court of Appeal in the Kent v. Kent decision extended the presumption of resulting trust to real estate. In that case, a daughter’s name had been added to title to a property. This author can live with that view. The daughter would have been part of the process whereby she which would have been added on title. She would have been able to assemble and give evidence as a justification as to why the survivorship rules of joint tenancy should have applied and further a lawyer would have been involved in the process, who should have made notes.
But all of this comes crashing over the cliff with a series of decisions made across the country and most recently and most dangerously in Ontario by the learned Justice Richard Lococo in the Calmusky case.
All of these decisions are at the trial level and as such are only persuasive to other trial judges and not binding upon them. I describe all of this as palm tree justice gone wild. In the decision of Calmusky, the presumption of resulting trust was extended to a RIFF beneficiary designation. Further it was held that it applied to all beneficiary designations found or RRSP or Insurance policies. The learned justice treated that beneficiary designation as a transfer without consideration and placed the onus upon the beneficiary to prove that indeed was the intent of the person making that beneficiary designation. However, in this author’s view, there was no transfer until the parental owner of the RRSP died. The owner of a RIFF or RRSP or Life Insurance Policy (unless named as an irrevocable beneficiary) can always change that beneficiary designation. The presumption of resulting trust also places the onus on the beneficiary, the responsibility to explain and justify the beneficial intent of the parent. But what if the named beneficiary did not even know that they were so named? How can they be expected to produce this evidence?
In this author’s view, these string of cases are (A) a judicial gift to lawyers to find new things to fight over, (B) an example of palm tree justice gone wild. Palm tree justice is an undeclared tendency of some judges giving into their human nature in wanting to do the right thing. The facts direct the judge to a conclusion and then they find judicial justification. One can see this described in the off quoted adage “bad facts make bad law”.
The practical problems are mindboggling. One may have a Life Insurance Policy of a million dollars which was specifically arranged so as to (A). avoid it being subject to probate, (B) subject to probate tax and (C) avoid claims by creditors, all of these valid reasons being sabotaged by this justice gone wild concept when those assets are then dragged back into the estate and are governed by the terms of the Will. Every Will begins with the standard clause that the first obligation of an executor is to pay the debts of the estate before beneficiaries receive anything.
Hopefully an appeal decision will rectify this problem and that may take years if at all This author and many others believe that these string of cases are wrongly decided and a decision that would impact literally millions of beneficiary designations.
So what should one do? We urge our clients to head this problem off at the outset. Our office can prepare a declaration form in which the owner of the asset (RIFF, RRSP and Life Insurance Policy) can confirm that a beneficiary means a beneficiary and that this is not subject to the presumption of resulting trust and should not be treated as an asset of one’s estate.
When is an Owner of a Bank Account not an Owner?
The Supreme Court of Canada in the Precore decision confirmed the equitable rule (i.e. fairness law) called the presumption of resulting trust and applied it to jointly owned bank accounts. Frequently parents will add an adult child as a joint holder of a bank account. Generally this is done as banking convenience. As time passes, the child/parent relationship reverses and the child assumes the financial management of the parent’s affairs. However, by virtue of joint tenancy and the death of the parent, the surviving child becomes the sole owner of the bank account. But was that the intention of the now deceased parent? Looking at various factual indicators, the court confirmed that the answer was no. The child was only a convenience placeholder and the beneficial owner throughout was the parent That beneficial ownership continues after death and the bank account should now form part of the assets of the deceased parent’s estate. On a practical basis, our clients do not include these assets in their probate application, but agree with the beneficiaries of the estate that it is indeed an asset and is governed by the terms of the Will. So far so good, logical and fair. I would now refer you onto a further blog article about how logic falls off the edge of the table and becomes a shard of glass stuck in one’s leg. See our blog titled Palm Tree Justice Gone Wild.
Hopefully readers of this blog years from now will read this document and chuckle in amazement looking upon the subject matter as being a historical anomaly.
However as this blog is drafted, we are in the middle of a global pandemic COVID-19 that I shall simply refer to as the plague.
The plague has caused one and all to self-isolate around the world and has caused thousands of deaths. There are a few of us who cannot recite the names of relatives or friends that have been taken far too early from us as victims of COVID-19.
The plague has impacted the practice of Will and Powers of Attorney signing and the Government authorities have shown an uncharacteristic rapid flexibility in dealing with practical problems arising from the effect of the plague.
The Provincial Government has allowed under very strict guidelines virtual signing of wills pursuant to a Provincial order in counsel, 518-2020 Ontario Regulation 50-20, pursuant to section 7.0.1 of the Emergency Management and Civil Protection Act and extended pursuant to section 7.0.7 of the Act. In essence, during the duration of the declared emergency, the interpretation of the presence of the testator and witness as being present, under the Succession Law Reform Act (the Act that sets out the formalities for signing of a Will and Power of Attorney) permits that the requirement that witnesses be present for the execution of a Power of Attorney and Will may be satisfied by means of audio, visual communication technology provided that at least one person who is acting as a witness is a lawyer within the meaning of the Law Society Act.
Audio, visual communication technology means any electronic method of communication in which the participants are able to see, hear and communicate with each other in real time.
In other words, the myriad of social media apps such as WhatsApp’s, Facetime and Zoom are valid work arounds over the problem of Will and Power of Attorney signings during this crisis.
Remember that “Testator” means the person making the will and giving instructions on what is to happen to their assets upon their death. Testator and Will Maker are synonyms.
The specific process which we will outline below in greater detail is more laborious and time consuming, but it is an acceptable methodology of dealing with this plague induced crises. This assumes that the lawyer/witness and witness #2 are physically together (Code for my ever helpful wife is beside me. The steps to follow are as follows:
- Our office will forward onto you in advance copies of the Wills and Powers of Attorney for you to review and confirm that they accurately reflects your instructions.
- By teleconference, you will have a discussion with the drafting lawyer confirming that you understand the terms of the Will and Powers of Attorney and answering questions that you may have.
- Our office will email onto you a final version of the Will and Powers of Attorney for signing.
- The clients/testator shall print out at least one copy of the Will and two copies of the Powers of Attorney.
- The client will have forwarded by email onto our office by way of scanning or photograph photographic identification such as a Driver’s Licence.
- When the parties are ready to sign a video conference shall take place. All testators must be visible and audible and be part of the video conference. From our offices’ perspective, the two witnesses, one of whom must be a lawyer will be physically with each other and will participate in the video conference.
- Each of the parties will confirm that they can see and hear one another, that the sound and video are on and transmitting.
- Each of the testators shall identify themselves by holding up a piece of ID to the camera so that the parties can be identified.
- No one else may be present with the Testator/Will maker who may be a beneficiary or who may be influencing the Will maker. In other words, the testators and grantors of the Powers of Attorney must not have any other family members or friends present. The obvious exception is a married couple who are making each other their primary sole beneficiary.
- The Will maker will follow the following process:
- Hold up the first page of the Will to the camera.
- The two witnesses will confirm that they see the first page.
- The Will maker will place their initials on the bottom right corner of each page.
- The Will make will hold up the first page to the camera to show those initials.
- Each of the two witnesses will confirm that they see the initials.
- Repeat the process for each page until the last page.
- On the last page, insert the date of signature where indicated.
- If not already inserted, place your initials next to the date if handwritten.
- The Will maker shall each sign with the regular signature on the last page when indicated.
- The Will maker will hold up the last page to the camera to confirm and identify their signature.
- Each of the two witnesses shall confirm that they see the signatures.
- Rinse and repeat for the Powers of Attorney, no need to initial pages, just the signature on the last page at the appropriate location.
- All the parties shall confirm that they can see and hear one another and that the sound and video are on and transmitting and each participant shall identify themselves.
- The first witness who is not the lawyer shall hold up the first page of the will to the camera.
- Have the Will maker and the lawyer confirm that they see the first page.
- The witness number two shall place their initials in the bottom right corner of each page.
- Hold up the first page to the camera to show those initials.
- Have the Will maker and lawyer confirm that they see the initials of the first witness.
- Repeat the process for each page until the last page.
- The non-lawyer witness shall place their initials next to the date if handwritten.
- The second witness shall insert the date of signing of the witness signature beside their witness line.
- The second witness shall sign with a regular signature on the last page where indicated.
- Witness number two shall hold up the last page to the camera to show the signature.
- Have the Will maker and the lawyer confirm that they can see the last page of the witness number one.
- The lawyer shall then repeat the same instructions with respect to the non-lawyer witness.
- Repeat the entire process for the Powers of Attorney however no witnessing of pages, only the signature page.
- All parties shall be present throughout both of the video conferences.
This is a far more laborious process, but it is the best that can be done at this stage. Failure to following these steps may make the Will invalid and it is important that all concerned pay careful attention to that which is required under these new emergency rules and regulations.
As hopefully as is obvious from the laborious instructions, this is far more time consuming and as a result, there is a token $250.00 additional charge plus a courier fee. As always, our clients have the option to simply defer until the passing of the plague and to simply sign the Will and Powers of Attorney in the presence of a lawyer and witness at our office.
At the outset, we are a law firm and we do not provide tax advice. However, we strongly urge our clients at the earliest possible date to retain the services of a qualified and designated accountant to assist in filing the various tax returns that are necessarily filed as a result of the death of the testator.
This is not simply the tax return covering the last year of the life of the deceased. There generally is a requirement that the estate file one or more returns to cover the income and expenses of the estate.
The topics discussed below are pointed out in the most simplistic (relatively speaking) of terms possible and are only raised as a method of ensuring that an executor indeed does follow our advice and retain the services of a qualified accountant.
There is no capital gains exemption for real estate owned by an estate. We are all well aware of the fact that our principal residence during our lifetime is shelter from any capital gains the home enjoys. Our principal residence may have appreciated significantly as has been enjoyed by most properties in the GTA over the last decade. However, this capital gain exemption does not extend to an estate. The amount by which a property appreciates in value from the date of death until its liquidation is treated as a capital gain and taxed. If their increase is significant, a great deal of tax may be incurred. This is important when making decisions regarding the administration of an estate.
One year limitation for capital loss carryback. The death of a tax payor triggers tax under Section 70.5 of the Income Tax Act. A tax payor is deemed to have disposed of all of his capital property at its fair market value immediately before his or her death. The taxpayer’s estate is responsibile for the payment of any tax payable by the deceased on the gains so reported. There are some exceptions, the primary one being a rollover to a spouse. In general terms, to qualify for a spousal rollover, the property transferred as a result of death must be transferred or distributed to either the deceased taxpayer’s spouse or common law partner or a qualifying spousal trust. However, for the spousal rollover to be successful, it must be done within 36 months of death.
There is a double taxation problem dealing with shares held in a private company. There are a number of planning technics available to reduce or eliminate the risk of double taxation on private company shares. These need to be actively looked at and an executor who is managing an estate that includes such shares must seek competent tax advice on a prompt basis.
There can be complications when an estate is in the midst of litigation and an executor or an estate trustee during litigation must be alive to these problems and seek the court’s guidance.
Graduated rate estate status (“GRE”). An estate generally is taxed at the highest marginal rate and is granted virtually no deductions that the deceased had while alive. One exception is the creation of a GRE. To do so, the estate must designate itself in its very first Income Tax Return as the individuals’ GRE and the estate must qualify and continue to qualify as a testamentary trust. A GRE may not receive a loan or advance from one of the beneficiaries. A GRE has the following benefits and these only exist for a three year period.
- Graduated tax rates – a GRE is taxed at a graduated rate applicable to individuals rather than the highest marginal rate which presently is 53.3% in Ontario. (thank you Justin Trudeau)
- Non calendar year end – a GRE is not required to have a December 31 year end.
- Charitable Donations – their treatment is far more flexible when made by a GRE.
- Capital loss carryback- the benefit under section 164 (6) of the Income Tax Act is only available to an estate that is a GRE.
- No part 12.2 tax – GREs are exempt from this tax which can apply when an estate has non-resident beneficiaries and earns certain types of Canadian source income.
The Moral – get a good accountant.
There is a very common tax-planning method called an estate freeze. The tactic is endorsed by the Canada Revenue Agency — as “garden-variety tax planning,”
The following is an example of an estate freeze.
Ms. Successful has built a company, now worth $30 million. She expects it will grow significantly in value by the time of her death, but if she gives the company to her children at that time, they’ll have a huge tax bill. One-half of capital gains are taxable when capital properties are willed to the next-in-line andmore than 25 per cent of accrued capital gains would be owed on the death of a taxpayer in the top income bracket.
So, Ms. Successful freezes the estate. First, she exchanges her $30 million in common shares for $30 million in preferred shares with a fixed redemption amount of $30 million, meaning the value of the preferred shares cannot exceed $30 million. The preferred shares are granted sole voting and control rights.
In exchanging the common shares for preferred shares, the Ms. Successful secures $30 million but denies herself the gains produced as the company grows. Ms. Successful’s children then purchase common shares — initially with zero value — in which that growth is captured. The children “buy” shares for $0, and worth nothing so no tax is triggered.
Ms. Successful continues to control the company and lives off the $30 million, while the company grows to $200 million and the common shares owned by the children increase in value. Without the freeze, that capital transfer would include a $50 million tax bill, but because of the freeze, no common shares are transferred whenshe dies and that’s a tax savings of $45 million. The successors will pay capital gains tax but not until they dispose of their shares, which could be many years later.
Estate freezes are a very valuable tool to assist in legitimate succession planning. Freezes are not reserved for the rich but used by the average business owner.
Estate freezes facilitate the transition of businesses between generations or key employees in an orderly and tax-neutral way.
The mechanics of the estate freeze vary widely, but they usually involve an owner who has enough value in their business to retire on and wants to sell it or bequeath it — either to family, employees, management or others with a connection to the business — allowing them to buy in at a nominal price.
An estate freeze doesnot reduce tax but merely defers it and is a solution to the liquidity issue arising if the shares were sold or transferred and money was owed to Canadian Revenue Agency with all the cash locked up in the shares. These risks result in most businesses not surviving a transition in ownership.
An estate freeze allows one to open the door to new people, who can then get in on that ground floor without having to spend money they do not have.
Remember that most small businesses have access to an exemption of $867,000 for capital gains tax on shares. The societal criticism of estate freezes is it allows high-net-worth families to avoid significant amounts of tax on inter-generational transfers of capital.
Estate freezes can be further embellished by Ms. Successful no longer taking a salary after the freeze. Any payment she receives from the company can be used to redeem or buy back her $30 Million in preferred shares. If she lives long enough, all of her preferred shares will have been redeemed by the company further reducing if not eliminating any tax on her estate’s interest in the company.
The primary purpose of an executor is to bring in the assets of the estate, pay all of its debts and then to distribute those assets in accordance with the terms of the Will. On paper, a relatively straight forward and simplistic set of rules. However, the reality often is far more complicated and can involve conflicts with those nearest and dearest to you. The duty placed upon an executor is a fiduciary duty. In other words, a trust relationship. An executor is placed on a high pedestal, built upon a foundation of trust. If you breach that trust relationship, you can be removed as an executor, forced to pay the unnecessary legal and other costs incurred by the estate as result of your misdeeds and be responsible for your own legal fees. An executor is required to act in a prudent and careful fashion guided by what a prudent business person would do in the same situation.
Even if named, do I have to act as an Estate Trustee?
The answer is no. At the outset, even if you have been appointed in a Will or are the most obvious candidate to apply to be appointed as estate trustee in the absence of a Will, you are not bound to take up that responsibility. At the very beginning, you can resign and/or decline to so act. However, if you pick up the mantle and begin to act as an estate trustee, and certainly if you apply and are so appointed by the courts, you can only be removed from that position by an order of the court.
All of the responsibilities of an estate trustee, once you assume that responsibility are yours and you must fulfill them it to the best of your ability.
The most common scenario in which a person will decline their appointment as estate trustee, is for an estate that has a negative value. Even though an estate trustee’s fees are paid in priority to any creditor, it rarely is worth the aggravation and effort to carry out those duties. Often if the net worth of an estate is one that is suspect, a preliminary unofficial inventory will be a prospective executor’s first duty.
Faithful readers of this blog will be aware of the earlier decision of Justice Dunphy of the Ontario Superior Court of Justice, who held as a result of a “basket clause” found in a standard precedent for Primary and Secondary Wills that the Secondary Will was invalid.
All one needs to know is that as a result of Justice Dunphy’s decision, thousands of Wills created across the province by hundreds of law firms may very well have been invalid. This led to lawyers across the province, including our firm, sending out letters and emails to their clients warning that the estate planning that had been done on their behalf may need to be redone. Luckily the executors of the Milne Estate decided to appeal.
On January 24, 2019, the Ontario Divisional Court reaffirmed the validity of the Will that had been criticized and invalidated by Justice Dunphy.
While the precedent that our firm had been using was a slightly different form than that criticized by Justice Dunphy, it is now academic. The court accepted that the very premise of Justice Dunphy’s criticism of the Will in which he stated that a Will was in essence a Trust was undercut by the Divisional Court.
Bottom line, the Estate Bar and its clients across the province can breathe a sigh of relief as there is no need for an update, there is no need for changes, the existing Wills that our firm had prepared for you are as valid as the date upon which they were originally drafted.
That is not to say that reviewing the factual basis upon which your Wills were drafted, is not a valid exercise.
If things have changed, if the people you had initially felt were appropriate executors no longer hold that title in your mind, then you should return and speak to one of our lawyers. Well done to the appeal counsel and to the Divisional Court in pouring oil upon troubled waters.