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.

Paying Your Estate Trustee: Some Important Considerations Regarding Compensation and Tax for Executors

Date: 04 Jul, 2014

The administration of an estate by a trustee (also called an executor) can be very time consuming and involved. As a result, estate trustees have a statutory right to be paid for their services. The form and amount of compensation can vary widely based on the size of the estate, the time and skill required and the success achieved in administrating it. As a general rule of thumb, estate trustees typically take a percentage of the receipts as compensation. However, there are a number of ways to structure the compensation. There can be a specific amount set out in the will to be paid to the estate trustee. Likewise, the executor can take a gift or bequest as compensation. This occurs when they are left something in the will as a form of compensation.  The way the compensation is structured is very important.

Many estate trustees are surprised to learn that their compensation from the estate can attract income tax as an office or employment source. This brings with it many of the T4 and CPP requirements that, if left unreported, can attract a personal tax bill for the executor and payroll liabilities for the estate. Some people may prefer to structure the compensation as a specific gift to the estate trustee. These gifts will not be taxable but the testator (person making the will) should be careful that the gift cannot be construed as compensation for the executor’s work. If it is, the gift will become taxable. Another option that will not avoid tax, but may lower tax payable, is to straddle compensation over different calendar years. This can lower the marginal tax rate of the estate trustee, which can result in less tax being paid.

In addition to direct compensation, estate trustees can bill travel expenses to the estate. These expenses must be related to the administration of the trust and they must be reasonable.  Reasonable travel expenses will not attract tax but there are a number of requirements that the Canada Revenue Agency (CRA) has. Estate trustees should be careful with their travel expenses and comply with the CRA requirements or else they could be subject to tax. The irony is that executors rarely claim the fees received as income.

The implications of tax on estate planning are very complex but can result in large savings. A blog positing cannot fully do justice to the complexity of this field of law. If you are thinking about estate planning and want to provide the most efficient system for administrating your estate, you should seek legal advice. The lawyers at Dale Streiman Law LLP have experience with all facets of wills and estates. They are ideally suited to create the most effective succession plan based on your unique needs.

Can an Estate Collect on a Life Insurance Policy if the Named Beneficiary is Disqualified? Or Can a Murderer collect his wife’s life insurance?

Date: 04 Jul, 2014

A recent case from the Ontario Superior Court of Justice raises some important questions about the interplay between estates law and insurance law. In Papasotiriou v Manufacturer’s Insurance Co[i], the named beneficiary of a life insurance policy could be disqualified on public policy grounds because he was the one responsible for the death of the owner of the policy. There is a long line of cases from the Supreme Court and Ontario Court of Appeal that clearly states that a person cannot profit from their crime. This means that the murderer cannot collect on the life insurance policy. In this case the named beneficiary was arrested for the murder but not yet convicted. The estate took the position that, if he is convicted and subsequently disqualified, the life insurance policy should be paid out to the estate.

Master Dash heard the case which involved a number of distinct legal issues. Firstly, the relatives of the deceased wanted to intervene in the alleged murder’s action against the insurance company. The accused murderer was trying to collect before the final verdict in the criminal case was announced and the family want to stop that from happening. Secondly, Master Dash granted the insurance company’s request to have the money in the policy paid into the court. This allowed the insurance company to move on from this policy and the court to stop proceedings until after the criminal case finishes. Finally, Master Dash made a distinction in insurance policies taken out by a beneficiary and those taken out by the deceased. If the ‘owner’ of the policy was deceased and the named beneficiary is disqualified, then the insurance company must pay out to the deceased’s estate. If the policy is ‘owned’ by the disqualified beneficiary, then the insurance company is not required to pay out.

This case illustrates how an estate can collect on a term life insurance policy that would have otherwise been disqualified because of the illegal actions of the beneficiary. The court is very clear that criminals cannot profit from their crime. Equally, this decision sends the message that the proceeds of an insurance policy can be payable to the deceased’s estate even when it is not the named beneficiary in the policy. This creates a distinction between policies taken out by the deceased and policies taken out by the alleged criminal.

This is a rare form of estate litigation but it does raise interesting challenges to basic principles. If you have an estates problem, contact the lawyers at Dale Streiman Law LLP. They have over thirty years of experience in estate matters, including a wealth of expertise in estate litigation.



[i] Papasotiriou v Manufacturer’s Insurance Co, 2012 ONSC 6473 available at http://www.canlii.org/en/on/onsc/doc/2012/2012onsc6473/2012onsc6473.html

 

Wills and Power of Attorney

Date: 07 Mar, 2014

The following summary is for information purposes and very important to all Ontario residents, for Simple Wills and Powers of Attorney for Personal Care/Health and for Property are required in Ontario and if you fail to have such documents prepared, then it is a most costly exercise to have your property and/or estate left and administered by spouse or family members.

For example, a Last Will and Testament is prepared in the event of death of the person executing the will, i.e. the testator; in such a Will, the testator would name his or her spouse or family member, one or two persons to act as the Estate Trustee/Executor to manage the estate and distribute the assets of the Testator after his or her death. You may wish to name an alternative person if the first named Estate Trustee/Executor cannot act or predeceases you. Normally after payment of debts and funeral expenses, then a bequest is left of all the property of the Testator i.e. the residue of the estate after payment of debts, funeral expenses and no need to list the type of property either real estate or investments, furnishings etc. Such residue of the Testator is then left/bequeathed to his or her spouse, then if the spouse did not survive, or predeceased the Testator would normally leave the residue of the estate to the children referred to as issue per stirpes, meaning that the children if underage would be left the property, and an age of responsibility when such children should receive their share of the Testator’s estate is then inserted, such as l8, 2l, 23, 25 years or other age. The Estate Trustee is authorized to hold that child’s share and invest such proceeds and use it for the care, maintenance, education/tuition of the child, and then when the child reaches the age as selected by the parent, the child would get the monies remaining in trust. If such child predeceased the parent, the “per stirpes” expression would apply and if for example there were 3 children, one died and left 2 children, i.e. grandchildren, such grandchildren would get their father/mother’s share of the grandparent’s estate being l/3rd share and other 2 children would get their l/3rd share each. There are other clauses, such as appointment of guardian to get custody and raise children under the age of majority, common accident clause if no one survived, a Family Law Act clause so that if one of the children received share in their parent’s estate, this share or bequest would not be shared with their spouse or claimed as a Family Asset under the Family Law Act of Ontario.

If you fail to have a will, then it is a costly exercise to appoint an estate trustee, usually a member of the family with possible insurance bonds. The will with the powers of attorney documents can be amended at any time, but clients are warned that if one spouse died, the other survived, and the children are no longer dependents, i.e. they are no longer in school and working, then the surviving spouse can revoke the will and cut out the children as beneficiaries and leave the estate to a third party. This can be protected if the spouses have a marriage contract. There are other issues such as cohabitation with common law spouses and property and other issues need protect just as in a Marriage Contract and that would be contained in a Cohabitation Agreement under terms of the Family Law Act of Ontario. All clients should know that if they remarry, a pre-existing will is revoked and such domestic contract under such Act is recommended.

For Powers of Attorney under the l995 Substitute Decisions , the parties should name the spouse as their prime attorney and name alternates or substitutes for the spouse in the event that the spouse cannot act or predeceased the person giving the power of attorney, i.e. the donor.It is also important not to designate your estate but rather your spouse, and then even your children or other relation as a contingent beneficiary under any life insurance, pension, or RRSP’s or RRIF’s if such institutions permit so as to avoid the large cost of probating a will.

There are 2 separate forms of powers of attorney, one for personal care or health, whereby the appointed attorney or substitute is authorized to make personal care, health decisions, consents to operations, blood transfusions, decisions as to where the donor wishes to reside or is institutionalized, if the donor suffers from a mental disability e.g. Alzheimer’s disease. This personal care power of attorney form also includes the living will clause which can be broadened but generally states that the donor does not wish any medical procedures or extraordinary prolongation of life, or resuscitation in the event that there is no brain activity.

Property power of attorney is important in Ontario whereby the donor would name the spouse and as substitute for the spouse, 2 persons/children/relations acting jointly to handle and administer the donor’s property, since if the donor or person granting the power of attorney becomes disabled, then the Office of the Public Guardian and Trustee of the Ontario Government will in most cases assume control of the donor’s property, house, bank accounts, during such person’s disability.

The costs for such wills and powers of attorney are set out in our website and we would be pleased to meet with any parties wishing such documents prepared.

By: Elliott Dale
Elliott-Dale

HENSON TRUSTS AND WILLS

Date: 07 Mar, 2014

A Henson Trust is a methodology by which a person making a Will (the testator) makes provisions for a disabled beneficiary, usually a child, without jeopardizing the beneficiaries’ ongoing government assistance. The most common scenario is a disabled child who is receiving monies under the Ontario Disability Support Plan (ODSP). The ODSP program will reduce its benefits dollar for dollar, if the recipient receives a benefit over a prescribed limit under a Will. Namely the problem was how to leave money to a beneficiary receiving disability benefits without barring them from receiving those ongoing benefits or suffering a corresponding reduction. The Henson Trust, named after a 1987 Ontario Divisional Court case, created an approved arrangement now commonly referred to as a Henson Trust and found in many Wills.

A Henson Trust is the creation of a completely discretionary trust, in the hands of the executors of one’s Will. It gives those executors complete and utter discretion to distribute as much of the income and capital of the estate or an amount set aside for one particular beneficiary as they see fit. It is that absolute discretion during the lifetime of the beneficiary that allows the Henson Trust to be characterized as never actually being received by the disabled beneficiary.

More simply put, it never belongs to the disabled beneficiary because it is distributed only if and when the executor wants to. If it is not within the disabled beneficiary’s control, it is not theirs and therefore does not interfere with the beneficiary’s receipt of ODSP or any government plan.The challenge of course is very carefully choosing an executor who will act as the trustee/administrator of the Henson Trust.

Not only must one very carefully choose an executor that one has absolute faith in, but the testator must keep one eye very carefully on the age of the executor/trustee. Often the partial or complete solution is naming a sibling of the disabled beneficiary as the executor. The risk of course is naming one of the executor’s siblings as the trustee of the Henson Trust only to find that person becoming disabled or dying long before the end of life of the disabled beneficiary.

In large estates, the solution, in the absence of such family members or a trusted executor, can be the appointment of a corporate trustee.Discuss this issue with your lawyer who is experienced in the drafting of Wills and understanding the interrelationship between a Henson Trust and the receipt of ODSP benefits.

By: Fred Streiman
Fred-Streiman

DEPENDENT RELIEF CLAIMS WHAT IF YOUR COMMONLAW SPOUSE LEAVES YOU NOTHING IN HIS/HER WILL

Date: 07 Mar, 2014

Under the Succession Law Reform Act, a deceased is forced to make adequate provision for their dependents upon their death. Section 58 of the Succession Law Reform Act states:

Where a deceased.has not made adequate provision for the proper support of his dependents,the court.may order such (support) as it considers adequate

Dependents means the spouse, the parent, a child or a sibling of the deceased whom the deceased was providing support or was under a legal obligation to provide support immediate before his or her death.

A spouse includes the same definition as can be found in the Family Law Act, namely a common law partner with whom the deceased had lived continuously for no less than three years or in a relationship of some permanence and had a child together.

It is important to note that any such application must be made within six months from the date that the deceased’s Will is probated.

The court has the ability to look at many different factors in determining what is appropriate but in the end, common sense is suppose to prevail. The court has wide latitude in making almost any kind of an Order. It can order a lump sum, periodic payments, payments to third parties or even mortgages against property.One also should note that you cannot contract out of this right. It does not matter what a separation agreement states, this right cannot be extinguished or bartered away.

It is important to note that what forms part of the deceased’s estate is quite wide and wider than what one would have thought have. Assets that the deceased held as joint tenants forms part of the assets. Life insurance proceeds is another common example. The court can freeze any money that it believes forms part of that estate from being administered or distributed.Recently, the Superior Court of Justice in Ontario also injected a component of a moral obligation over and above that of simple dependency. Justice Di Tomaso in the Stevens v. Fisher case, held that a common law spouse who arranged no coverage and left nothing in their old Will to their common law spouse of eleven years, had clearly not made adequate provision for their dependent. Not only that, for eleven years, the common law spouse had been a devoted caregiver and wife. There was an old insurance policy for $84,000.00 which the deceased had named as a beneficiary his previous common law spouse.

The court was not impressed and ordered virtually all of the insurance policy left by the deceased be paid to Ms. Stevens, the devoted common law spouse of eleven years.It may very well be that the deceased simply forgot to do a new Will and to change the beneficiary of his insurance policy.These claims are complex and require the assistance of a lawyer experienced in estate litigation. The lawyers at Dale Streiman Law LLP would be pleased to assist in any claims following under this interesting legal umbrella.

By: Fred Streiman
Fred-Streiman

Succession Planning: Lowering Your Beneficiaries Tax Bill on the Cottage

Date: 07 Mar, 2014

Succession planning is a field of law that deals with wills, probate and estate planning after a person dies. This field of law is largely governed by the Succession Law Reform Act in Ontario but there are a number of other factors that should be considered. One very important consideration is tax, specifically capital gains tax. This is a tax on the increase in value of a capital asset, such as a cottage, while it was owned. When a person is left property in a will, and they are not the deceased’s spouse, capital gains must be paid. The rate on inclusion for tax purposes has changed over the years, but it is safe to say that this tax bill can be large. This is especially true for the family cottage.

There is a common scenario in this type of case. A family cottage was purchased for a few thousand dollars decades ago. Over the years the price has ballooned to hundreds of thousands of dollars or maybe more. This appreciation in value attracts a large tax bill which could force the beneficiaries to sell the family cottage in order to pay it off. This defeats the purposes of passing on the family cottage to the next generation. However, it does not have to be this way. With proper succession planning the testator (person making the will) can arrange their affairs in a way that significantly lowers the tax liabilities that the property will attract.

As an example, there are two simple techniques for lowering capital gains obligations that the beneficiaries will owe on the cottage. The first is to gift the cottage to them now. This will attract an immediate capital gains tax which will be lower than the future tax (assuming rates stay the same and property values continue to increase). The second is to take out insurance through a life insurance policy that will cover the expected tax liabilities when the estate is settled.

These are just two examples of the ways that tax implications can effect succession planning. A blog post cannot fully address all the issues surrounding the interplay between tax law and succession planning. Every situation is different and there may be better solutions for you. The lawyers at Dale Streiman Law LLP can help customize a succession plan perfectly tailored to your needs.

By: Fred Streiman and Stephen Duffy
Fred-Streiman