NEW RULES WITH RESPECT TO SMALL ESTATES

NEW RULES WITH RESPECT TO SMALL ESTATES
Date: 13 May, 2021

Effective February 12, 2021, the laws with respect to “small” estates have changed dramatically. The law is so new that while it is effective February 12, 2021, it has only recently been enacted. This is part of the Accelerating Access to Justice Act. This is done by amendments to the Rules of Civil Procedure, specifically rule 74.1. The concept is to make estates having a total value of less than $150,000.00 simpler and easier to administer. Actually using the process will determine whether or not this goal will be realized. One must remember that the estate tax applies after the first $50,000.00. The forms are available online, however, they still require the involvement of a lawyer as the Application needs to be commissioned. Another debate is whether or not one can use this process for just the assets governed by the primary Will. A primary Will is part of a very complicated estate planning process in which efforts are made to eliminate the need for probate. It is far too early to indicate whether or not this indeed will be effective, but it is important for all concerned to keep this provision in mind.

REVOLUTIONARY CHANGES IN THE LAWS REGARDING WILLS IN ONTARIO  – PART 2 HOW TO FIX A WILL AFTER DEATH

Law
Date: 07 May, 2021

A number of other Provinces have substantial compliance laws.  In other words, a Judge, after the fact and after the maker of the Will – the testator – has passed away, the ability to fix errors in the Will.  I am not speaking of the process of rectification that is discussed in another blog.  A prime example of rectification is when the client told the lawyer to include something in the Will and solely as a result of the error of the lawyer, that provision was not made.  Under those circumstances, the court may rectify that error.

The substantial compliance provision that we are discussing now is remedying an error in the formal process.  The court will be given the power once the Accelerating Access to Justice Act receives royal proclamation, which is not likely to occur until 2022,  to declare a Will to be valid even though some formalities were not observed.  An example would be if only one witness signed or if the witness simply printed their name and forgot to attach their signature.  In those circumstances, the persons putting forward the Will can ask the court to declare the Will as being valid so long as the court believes that the Will does accurately set out the testamentary intention of the deceased.  Again, in plain English, the concept is that there may have been a slight formal “screwup”, but this document put forward as a Will indeed does accurately reflect what the maker of the Will meant it to say.  Please note that the absence of a wet signature, in other words, pen actually hitting paper,  is not an error that can be remedied under this proposed provision.  Also this will not be a retroactive law.  In other words, whenever the law receives royal proclamation, it only applies to Wills made after that date.

REVOLUTIONARY CHANGES IN THE LAWS REGARDING WILLS IN ONTARIO

law
Date: 06 May, 2021

As we had touched on in an earlier blog, one of the ramifications of COVID-19 has been to trigger changes to the way courts and laws are applied throughout the Province.  One of the areas that are being updated under the Accelerating Access to Justice Act is the laws with respect to Wills.  The changes specifically are being made to the Succession Law Reform Act and the Substitute Decisions Act.

Once the plague hit the world, the Government of Ontario acted relatively quickly and enacted emergency regulations as of April 7, 2020.  One of those regulations permitted for the first time witnessing of Wills through an audio-visual platform, such as ZOOM or SKYPE.  The regulations were soon clarified to allow virtual signings to be done in counterpart.  In other words, the client at one end of the process signed one set and the lawyer and the other witness signed an identical copy at the same time.

These rules are about to become a permanent fixture of the law of Ontario.  One must note that for remote witnessing to be valid, at least one of the witnesses must be a lawyer or a licenced paralegal.  The law will be retroactive to April 7, 2020.  The new Act refers to contemporaneous execution, which has been interpreted to mean that the Wills must be in counterpart.  That reqires the process as we discussed above and not circulating the same copy to be signed on separate dates.

While the Act has received royal assent, it still needs the final step by the Government to activate it, namely a royal proclamation.  That should happen relatively shortly.  One should note that the law specifically does not permit digital signatures.  What is called for is what is referred to as a wet signature.  Literally ink on paper.  This author does not disagree with that requirement. The signing of a Will is still a very formulaic process and attention to detail and ensuring that a Will is properly signed is one of the components of creating a valid Will.  In another blog, we will discuss possible remedies.

UNDUE INFLUENCE

Date: 08 Feb, 2021

Another common method of attacking the validity of a Will is an allegation of undue influence.  For a claim of undue influence to be effective, one would need to prove that the intent of the person making the Will had been overwhelmed and replaced by the person exerting the undue influence.  Imagine the scenario of a caregiver forcing an elderly person in their care to change their Will and leave all to themselves in the place of the person’s children.  The starting point for the law in this area is the decision of the eminent estate lawyer and later judge, Justice Cullity.  He set out the test in his seminal decision of Scott v. Cousins.  Undue influence is not simply influenced or persuasion.  In essence, it must go beyond that and reach the level of coercion.  In other words, it is not simply influenced or even persuasion, such as by a child attempting to convince a parent to divide up their estate in one fashion or another.  That is not the point.  As discussed originally in the 1885 English case of Wingrove v. Wingrove, the concept is only when the will of the person who is making the Will is coerced into doing that which he or she does not desire to do, that is what amounts to undue influence.  There is a presumption in favour of undue influence that arises out of certain family relationships and that applies to various transactions that take place during the testator’s life, (see the blog articles on the presumption of resulting trust) but they play no part in the law of wills.  The persons against whom such presumption arises in those transactions are typically those that a testator might naturally wish to share in their estate.  As an example, adding one child to the parent’s bank account, will likely not be held to be a valid transfer or gift.  But leaving that child all or part of an estate in a will is not subject to attack so easily.

Such persons are entitled to press what they think are their proper moral claims.  Undue influence is not simply bad influence but must amount to coercion.  Persuasion and advice do not amount to undue influence, so long as the free will of the testator to accept or reject is not lost.  Appeals to the affection or ties of the relative, or seeking gratitude for past services or even pity all may be fairly pressed upon the testator.  The testator may be led, but not driven and the testator’s Will must be the product of their own desires, not the record of what someone else wants.  There is no undue influence unless the testator if they could speak would say, this is not my wish, but I must do it.

The onus of proving undue influence rests on the person alleging the undue influence, all of which is to be proven on the balance of probabilities.  The influence imposed by some other person on the deceased must be so overpowering that the document reflects the Will of the influencer and not of the deceased.  A tall order, but there are certain circumstances that give rise to a presumption that undue influence may very well exist.

Not a simple test, and to prosecute such an attack requires experience and finesse based on evidence.

Estate Administration – Income Taxes

Date: 05 Feb, 2021

I want to first acknowledge that any errors in this blog article are my sole responsibility, but I tip my hat to Ms. Estelle Wieler CPA, CA, CEA (Certified Executor Advisor) of Calvin G Vickery CPA Professional Corporation for her guidance.

One of the most important duties of an executor is ensuring that the final tax return of the deceased is filed, often referred to as a terminal return.

That tax return covers the deceased’s final year from January 1 to the date of death, which is why it is sometimes called a “stub year”.

In most Estates, this responsibility also includes filing tax returns for the Estate. The Estate is a taxable entity, just like a corporation or person. If it earns income, it must file a tax return.

Our firm’s practice is to strongly recommend to all of our Estate clients that they seek the services of a qualified accountant. This task is beyond the capabilities of all but the most learned of our clients and certainly that of simple tax preparation services and bookkeepers.

The rules and forms of an Estate tax return are quite different from a personal tax return.

It is important that we separate the different types of taxes. There is the provincial estate tax, which is generally calculated at 1.5% of the value of an estate that is being probated.

Then there are the final income taxes that are triggered by the death of a person and in the absence of a spousal rollover will trigger a deemed disposition upon death. In English, it is as if the deceased had sold everything the day before they died and the profit or tax sheltering that they had organized in their lifetime is exposed to the waiting hand of the taxman/woman.

There is another tax and that is upon any income earned by an Estate. An Estate before distribution can earn interest income. If it holds real estate, that real estate may appreciate and possibly attracts even more income and the responding income tax.

Under the present tax laws, an estate is able to enjoy graduated tax rates for the first three years of its existence. Graduated rates are the same income tax rates that we as private individuals get to enjoy. As we climb the income ladder, the government takes an even greater share of income tax. Estates for the first year three years of its “life” enjoys the same benefits. However, beyond the three year limit, any estate income is taxed at the highest marginal rate presently approximately 53%.

One possible strategy is to attribute the estate’s income to the actual beneficiaries and have them declare the estate’s income to take advantage of their lower tax rate rather than the estate’s exposure. CRA does seem to find it acceptable administratively to allow the estate’s accountant to choose the best option between whether to tax income inside the estate or allocate it to the beneficiaries as long as certain basic rules are followed (which are too complicated to expand on here). When it is allocated to the beneficiary, the estate’s accountant must indicate that this is being done on the estate tax return and a tax income slip is issued to the beneficiary. However, this strategy is rarely taken for a number of reasons. Firstly, the first 36 months of an estate, the estate also has the graduated rates that we have indicated. So, unless a beneficiary has so little income that he or she has not used their personal tax credits, it is generally better to tax the income within the estate itself. There are even additional negative consequences of having the income declared by the beneficiaries. This flow-through income may very well affect the beneficiaries dependent claim. Further, all of the low income support that one potentially could receive such as the Ontario Trillium Benefit, GST Credit etc. or perhaps even disability support, such as under the ODSP maybe negatively be affected. Clearly, this is a very complicated question, and an accountant’s guidance is required. In conclusion generally, unless the estate has continued to drag on beyond its 36 months graduated tax rate period, one almost always taxes an estate income within itself and it is not generally allocated down to the beneficiaries during that time.

All of this is driven by CRA‘s administration rules which are generally observed for the smaller sized estate. For estates that are of significant value, one must tread carefully. As more senior CRA agents are generally involved, they administer the rules far more strictly.

One should also note that an estate does not enjoy a capital gains exemption for a principal residence, except in very limited circumstances that do not apply to most estates. The home that you have owned and lived in may have dramatically appreciated, but it is deemed to be tax free for you because of that capital gains principal residence exemption. The estate has no such shield from the open hands of the taxman.

Conclusion, this is complicated stuff and as lawyers, it is our job to simply alert you in broad strokes to those concerns and to emphasize to you the importance of having the input of a qualified accountant.

FIRST LAND TITLES DEALING PROBATE EXEMPTION

Date: 14 Jan, 2021

There is a highly exotic and often overlooked exemption to the necessity of probate in dealing with Real Estate.  It is formally known as the first dealings in land titles exemption. 

When the British Government assumed control of what would become the Province of Ontario, it began a relatively rudimentary system of land registration and title.  That was eventually formalized under the Ontario Registry Act.  It was inexact and required examining in detail paper records that were always not in perfect order.  It was highly contentious and error prone. 

Following the lead of Australia, a Torrens system was put in place.  That Torrens system in which ownership records of all of the properties in the Province of Ontario are digitized and are registered in a central computer system.  They are governed by the Land Titles Act.  Slowly over the course of many years, all Real Estate in Ontario has by and large been moved from being controlled by the Registry Act to the Land Titles Act. 

The Province in the equivalent of a get out of jail free card, granted those properties that have not been “dealt” with or transferred after being converted from the Registry to the Land Titles system a waiver of probate. 

However, what the government giveth, the government taketh away.  Generally this is only effective if there are no other significant assets of the estate.  Further if the estate had any debts, including any income tax that is simply triggered by the death of the testator, then all that can be done is title can be transferred in the absence of probate from the deceased into the names of the executors.  The executors realistically cannot sell or transfer the property to a third party purchaser because the registration into the names of the executors will state it is subject to debts of the estate.  There are few purchasers that are prepared to buy a property and then assume the debts of an estate.  There are some practical solutions such as pre-paying the tax well before it is due and owing, but unfortunately for many estates this exemption is not the panacea that one would have hoped for. 

Moral of the story.  Make sure your lawyer investigates this possibility and its ramifications.

Will Instructions and Questionnaire

Date: 26 Oct, 2020

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.

HOW TO CANCEL OR REVOKE A WILL

Date: 22 Oct, 2020

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. 

  1. 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. 
  2. Making another Will. 
  3. 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;
  4. 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. 

Palm tree justice gone wild

Date: 14 Oct, 2020

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.

Presumption of Resulting Trust

Date: 14 Oct, 2020

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.