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.

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.

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. 

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. 

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:

1. 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. 
2. 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.
3. Our office will email onto you a final version of the Will and Powers of Attorney for signing. 
4. The clients/testator shall print out at least one copy of the Will and two copies of the Powers of Attorney. 
5. The client will have forwarded by email onto our office by way of scanning or photograph photographic identification such as a Driver’s Licence.
6. 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. 
7. Each of the parties will confirm that they can see and hear one another, that the sound and video are on and transmitting. 
8. Each of the testators shall identify themselves by holding up a piece of ID to the camera so that the parties can be identified. 
9. 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.
10. 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.
11. The Will maker will arrange to deliver to the lawyer the signed Will and Powers of Attorney by courier.  The lawyer will tell you where to have the document delivered.
12. When the lawyer receives the Will and Powers of Attorney the lawyer along with the second witness shall be present and a second video conference shall be held. 
13. At the second video conference, all of the participants in the first video conference shall be present, and the following will take place: 
• 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.
14. The lawyer shall then prepare an Affidavit of Execution of the will.
15. The Will and Powers of Attorney shall be stored in accordance with the instructions of the client. 

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.