RRSPs and RIFs are a potential nightmare for Will and Estate Lawyers.

Wills and probate lawyers keep an eye on Registered Retirement Savings Plans which must be converted into Registered Income Fund by the end of the year in which the owner turns 71. They offer many opportunities and pitfalls for their owners and wills and estate lawyers, and Estate Litigation Lawyers. They are usually referred to as Registered Assets. They allow beneficiary designations and therefore flow outside a will and are not subject to creditors or probate tax. However, the beneficiary designations are extremely limited and for our older clients we strongly suggest the Full Monty strategy which can remedy those shortcomings. If you want more information on the Full Monty just use the search function on our website.

There are significant tax ramifications. Unless a qualifying beneficiary designation has been made under section 70 (5) & (6) of the Income Tax Act, the entire RRSP or RIF is deemed to have been brought into income immediately prior to one’s death and is taxed in the final tax return. In simple terms if you die owning $100,000 RRSP, all of the $100,000 is treated as income in the last year of your life. A lot of tax will be triggered.

Many people are aware that if they name their spouse (legal marriage or common law), there can be a tax deferral. The RRSP or RRIF is accordingly permitted to be rolled over to ones spouse and is not taxed until the surviving spouse either dies or withdraws money out of the RRSP or RIF. The sarcastic advice we give our clients to eternally delay tax is a series of remarriages to ever younger new spouses.

There are some other exceptions which permit tax free rollovers and these are defined in the Income Tax Act as a qualifying survivor. One can name as a beneficiary an adult child or grandchild who is financially dependent on the deceased due to a physical or
mental impairment.

Another alternative is naming a minor child or grandchild as a beneficiary of an RRSP, but only if they use the funds to purchase an annuity until the age of 18 and then only the income payments will be taxed. The original plan owner’s estate will not have to pay any taxes on these funds, provided the executor makes the required election in the deceased final tax return.

This even applies if no beneficiary designation is made and the RRSP or RIF is payable to the estate. If the beneficiary under the deceased Will is a qualifying spouse and they use those funds to contribute to their own RRSP and RIF a tax deferral can be accomplished. Again, there is an election that is required to be made by the executor.

Another RRSP issue is taking advantage of the tax-free rollover status when there are a number of potential beneficiaries, such as a surviving spouse and adult children from an earlier marriage. It requires a careful division especially if the willmaker wants to equalize the various assets formally in and out of their estate. Making the shares equal, when registered assets are involved is not a simple exercise for even Wills and Estates and Wills and Probate lawyers. You need to find one with experience and a hallmark of that, is the answer to the question, what portion of the lawyers practice is devoted to wills and estates? The irony is, the smaller the percentage, the cheaper the fee, and the lower the quality of the work provided.

When one is required to make an application for probate, formally known as seeking a Certificate of Appointment as an Estate Trustee, the provincial government looks for its pound of flesh. Under The Estate Administration Tax Act, the province levies a tax of 1.5% of the value of the estate in excess of $50,000. With a $2,050,000 estate, this equals the tidy sum of $30,000. Our firm’s strategy known as the “Full Monty” provides an absolute saving of this tax.  Just enter “Full Monty” in the search window for more information on the strategy.

To add insult to injury, the taxes are due when the application for probate is filed.

Sometimes clients of Will and Estate Lawyers such as our firm, do not have the funds available to pay the probate tax in advance. Estate lawyers see this situation when the estate is almost entirely comprised of a home, and not until it is sold will funds be available. Part of the normal services that Dale Streiman Law LLP Wills and Probate lawyers provides is seeking an order under Section 4 (2) of The Estate Administration Tax Act.  We get a Judge’s order deferring the payment of the probate tax, often framed as within three months of the home actually being sold.

It is important that everyone remember that the application for a deferral must be brought before a Judge and that the Judge needs the following information:

1. Why the estate certificate aka probate is urgently required.

2. Details of the financial hardship that would result from not issuing the estate certificate aka probate before the probate taxes are paid.

3. Confirmation that sufficient security for payment of the probate tax has been provided to the court. This usually is satisfied by listing the assets and debts of the estate, and in our example that the home is available with a significant amount of equity sufficient to pay the tax.

The filing of an Estate Information Return at the conclusion of the probate process is a service that our firm provides, which is not always the case with other lawyers who dabble in the area of probate and estate administration.

Wills and Power of Attorney lawyers keep in mind that there are various benefits to making charitable donations within one’s Will, but those benefits are maximized if the estate is a GRE . An estate can claim a donation tax credit in the year of the donation. Further, if the estate is a GRE, the estate can allocate the donation to any of the last two taxation years of the deceased. In other words, one can defer the donation until one’s death, but with proper tax advice and the assistance of a competent accountant, the charitable donation can be applied to one of the last two years of the deceased. This could be particularly important if a deceased owned at the time of death an RRSP or RIF, which is deemed to be collapsed at the time of death and the entire value of the RRSP or RIF is included in deceased’s income.  Dale Streiman Law LLP Wills and Estate lawyers always insist our estate clients hire a competent accountant.

Important factors to take into account and yet another reason why as Estate lawyers, in even our most basic wills, we include a provision that the estate is to be treated as a graduated rate estate.

I see that in the will that my crazy will and estate lawyer drafted for me, there is reference to a GRE or Graduated Rate Estate. What in the name of making a simple thing complicated is a GRE?

No this is not an effort by our office , lawyers in Brampton for wills, to make something simple complicated. But rather it is an effort by your wills and estates lawyers, in providing your estate with as many tax saving tools as possible. An estate is treated very differently from a live taxpayer. It must pay tax upon all of its income at the highest marginal rate, which in Ontario is presently 53.3%. An exception would be if your estate made an election within its first year, which is a step that the estates’ accountant must do, so that the estate for the first 36 months of its existence can be treated as a graduated rate estate.

Graduated rate simply means enjoy the same increasing rate of income taxation that a live tax payer enjoys.  As an example, if an individual only earns $10,000 in a year, the government will let you keep all of it. However, as your income increases, the government will take an ever-greater share up until it reaches the ultimate level of tax at the rate of 53.3%. To enjoy a GRE, the estate needs to meet a few technical requirements as imposed by the Income Tax Act. It must exist for no more than 36 months and the estate must be considered a testamentary trust. The vast majority of estates indeed are testamentary trusts and most importantly the estate must file an election within its first year as a GRE. This can save a significant amount of tax and that is why your Will prepared by Dale Streiman Law LLP Estate Lawyers makes reference to a GRE.  In other blogs we will discuss other tax advantages of a GRE.

Estate Lawyers, aka Will and Probate lawyers are often asked to help with an estate. It is also not common for a Will to be confusing.

The case of Salmon v. Rombogh is an example of a clash of a new law versus old formalities. A legislative attempt was made to fill a perceived hole in the law. It has proven to be a bonanza to lawyers. Previously if a document was not a proper Will and did not meet the formal requirements of The Succession Law Reform Act, the results were black and white. The “Will” was rejected. Now it has become an expensive litigious effort. In this particular case, we have a meticulous single man almost a decade after the death of his longtime common law wife. He has no children and is suffering from the effects of a lifetime of congenital heart disease. He is dependent upon his supportive neighbours who have looked after him. It is Covid and the testator (the Will Maker) lived in a self-imposed social bubble. He had prepared a proper Will in 2012 after his longtime common law wife had died. But over the next few years his family connections weakened, and he became ever more reliant on his neighbours whom he was very close with. He patched together a new Will using parts of his photocopied old Will with some handwritten additions, the “Frankenstein Will”. This he taped, assembled and signed in a notebook. Two weeks later he was dead, and the contest was on. Relatives whose interest in him had become diminished, tried to discount the “Frankenstein Will”. They attacked capacity with little evidence, see our other blogs on that subject, ONUS OF PROOF – HOW HAS TO PROVE WHAT but the real contest was the ability of the courts to use section 21.1 (1) of The Succession Law Reform Act. Was the Frankenstein Will one that the testator knew and approved of its content and did it represent his deliberate or fixed and final expression of his intention as to the disposal of his property on death. The idea is whether the Frankenstein Will expresses/embodies the animus testandi of the deceased, a deliberate or fixed and final expression of his intention as to the disposal of his property on death. Much effort was made by all involved from lawyers to Justice Jeanine E. LeRoy by looking at the minutiae of the testator’s life. It required at least 12 affidavits (lengthy formal sworn statements) and extensive medical records. Detailed factums (legal written arguments) and an exhaustive effort by Justice Jeanine E. LeRoy to survey the law on the many issues raised. The case is an excellent review of many areas of estate litigation, including the admissibility of a medical report of the treating physician, not as an expert report which requires notice and much formality under The Evidence Act, but rather as a participant expert. Failure to give notice struck the family doctor’s report, but the point was long ago decided. There is no evidence of the lack of testamentary capacity. The case is also an excellent summary of the law across Canada on section 21.1 (1) as of February of 2024. Justice Fred Myers, the notorious pied piper of plain-speaking judgments, see our other blogs IS A DRAFT WILL GOOD ENOUGH or FIXING A WILL AFTER DEATH-THE HORSESHOE RULE figures prominently of course in this review.

Estate Litigation lawyers, or Wills and Estate lawyers have been handed a bonanza by this well intentional law.

My long-winded conclusion is that under the old law all Mr. Rombogh had to do was call his lawyer who could have emailed or dictated for him the simplistic and minimal wording for a valid handwritten Will i.e. a Holographic Will. The central fight would have been avoided. Boil it down even further, all he had to do is call his lawyer who if even half competent would have guided him. The message is simple, do a Will, use a lawyer who is not charging the cheapest price you can find (a terrible way to decide on whom to hire). It will get done, and if done improperly there is legal negligence insurance to back it up.

We had earlier looked at The Substitute Decisions Act, which is the important act that governs the use of Powers of Attorney.  It contains the law with respect to the use of a Power of Attorney for property.

Some of us might be surprised to find that an attorney appointed under a Power of Attorney has the right to look at the donor’s Will.  Curious as to why that is? The reason is found in section 35.1, which prohibits the attorney from disposing of property that the attorney knows is subject to a specific testamentary gift in the incapable person’s Will.

Again the Donor is the person making or granting the Power of Attorney and the Attorney is the person to whom the power has been granted to.

In English, if the donor’s Will says I leave my gold coin collection to my son Bill, the attorney needs to know that, and it prohibits the attorney from selling the gold coin collection.  Despite that provision, the attorney can still sell the gold coin collection, if it is necessary to comply with the attorneys obligations.  Those obligations include acting in the best interests of the donor of the Power of Attorney.  It is illogical to preserve a gold coin collection if the donor is short of cash.  If there is significant money involved, it makes sense for the attorney to take advantage of section 39, which reads that if an incapable person has an attorney, the court may give directions on any question arising in connection with the guardianship or Power of Attorney.

In other words, if the attorney is not certain whether they are or not empowered to take a particular step, they can seek the advice of the court in advance.  These are issues that often come before Attorney Lawyers  aka lawyers such as ourselves who regularly deal with Wills and Power of Attorney, and if parties are fighting or if need the courts direction it can involve Estate Litigation lawyers such as ourselves.

As Estate Lawyers, Power of Attorney Lawyers or even Wills and Estate Lawyers, we have to keep an eye on many different topics.

Today we are going to explore the issue of ademption in Wills. First of all, a couple of terms found in wills. A “bequest” means leaving a specific item or an amount to an individual or group. In our example “I leave my gold coin collection to my son Bill”. That is different from an interest in the residue such as “I leave 25 percent of the residue of my estate, (in other words after the debts are paid), to my son Bill”.

Ademption is what occurs when, the gold coin collection in our example, has been lost, destroyed, sold or given away before the willmaker dies. In such a situation, the bequest is held to have adeemed and the gift fails. If there are proceeds from the sale of the gold coins, they fall into the residue and are distributed accordingly. The sale proceeds are not given to the named beneficiary of the bequest that has adeemed. So in our example, if the gold coin collection had been sold and turned into cash by the will maker, the son Bill will get nothing. The money from the sale of the gold coins simply falls into the pot also known as the residue and it is divided as per those instructions in the Will.

Remember that for the purpose of this blog “Attorney” does not mean lawyer it means the person appointed in the Power of Attorney.

We now have to look however, at an extremely important act, called The Substitute Decisions Act. That act is the law in Ontario that deals with people who have lost their capacity to manage their affairs or take care of their person. That is the law under which a Power of Attorney obtains its authority. What happens if the attorney would have sold the gold coin collection in our example for $100,000, and the proceeds could still be traced into a bank account. Section 36(1) changes the normal rules. If the will maker aka the Testator had sold the coins the normal rule would apply and the son would have lost the gift of the gold coins. However assume the will maker had lost their mental capacity and the attorney using the Power of Attorney had sold the gold coin collection, received the same $100,000 and then the willmaker died. Pursuant to section 36(1), the son Bill would still receive the sale proceeds, but without interest. If the $100,000 sale proceeds had been partially used for the benefit of the Donor of the Power of Attorney, then the proportion remaining would then be paid. To be specific, if the residue of the incapable person’s estate is not sufficient to pay all of the specific bequests, the person’s entitled shall share the residue proportional to the amounts to which otherwise they would have been entitled, in essence what remains.

This issue was debated, by the Ontario Court of Appeal some 20 years ago in the famous case of Canada Trust v. Gooderham. Here a very wealthy woman had multiple properties and other assets across North America. However towards the end of her life, she found herself asset rich, but cash poor. Her Will contained a bequest that her expensive summer home in Palm Beach Florida was to be given to her sister. After the will maker fell ill, her attorneys quite wisely decided that this was economically not justified. It cost a third of a million dollars per year to maintain and the wealthy woman could not even use the Palm Beach residence due to her health. The tricky part of this particular case is that the Palm Beach property was actually owned through a company, the shares of which were all owned by the wealthy woman. For reasons that are not important for this blog article, there was a lengthy and extremely expensive fight all of the way up to the Ontario Court of Appeal. Some six months after the home was sold, the woman died at age 87. The contest was between the sister and her nephews as to whether or not the Palm Beach sale proceeds belong to the sister or if it fell into the residue, and accordingly would partially have gone to the nephews. The nephew’s attempted to turn this case upon the technicality of the difference being between shares in a corporation and real estate. The learned application judge, Janet Wilson well-known to lawyers in this jurisdiction said no that is not the intention of the Substitute Decision Act and it fails to take into account the Interpretation Act s.10. It states that every Act shall be deemed to be remedial and every act shall receive such fair, large and liberal construction and interpretation as will best ensure the attainment of the object of the act according to its true intent meaning and spirit. Flowery words that in essence can simply be summed up as common sense. Why was the act written, what was its purpose and interpret the act in a fair and appropriate fashion. The Court of Appeal upheld Justice Janet Wilson’s decision. The nephews lost and the aunt/sister did receive the proceeds of the sale of the Palm Beach residence. An interesting case that is worthy of being touched upon some 20 years later as it is an excellent example of the anti-ademption rule. As Attorney lawyers these are issues we deal with regularly.