Update to the Estate Administration Checklist for Solicitors advising Estate Trustees Jag C. Gandhi VANCOUVER CALGARY EDMONTON SASKATOON REGINA LONDON KITCHENER- WATERLOO GUELPH TORONTO VAUGHAN MARKHAM MONTRÉAL
Topics to Cover: 1. General Reminders 2. Specific Updates to the 2013 Checklist 2
General Reminders 3
Need to Determine Who is your Client? The solicitor represents the personal representative (i.e. estate trustee), not the estate itself or the beneficiaries, and the solicitor should explain this to the personal representative. If there is more than one personal representative, the clients should be told that the solicitor takes instructions from all of the them and if one instructs the solicitor, the other must consent before the lawyer can act on the instructions. If a personal representative is renouncing, then there would be a need to discuss with the individuals who are attending who the client really is and who you would be taking instructions from. 4
Solicitor s Duties and Role Need to ensure that your client recognizes the distinction between roles of the solicitor and the estate trustee. Solicitor must clearly articulate that the role of decision making belongs to the estate trustee and not the solicitor. The estate trustee has a duty to personally perform all duties requiring the exercise of discretion, even if they choose to delegate some of the work to agents. If the solicitor is not giving tax and accounting advice that should be explicitly stated in the retainer letter and the best practice would dictate that the account or tax specialist retained for such services be named in the retainer letter, if possible. Provide examples to the estate trustee of what composes the solicitor s role vs the estate trustee s role. 5
Estate Trustee s Fiduciary Duty The obligation of the estate trustee is to perform his or her tasks personally, with care and with the sole interest of the beneficiaries in mind. An estate trustee must not permit his or her own interest to conflict in any way with his or her duty to the beneficiaries whom he or she serves. Need to explain the general rule with respect to delegation delegation of administrative duties is permissible, delegation of decision making duties is not. Need to explain the general rule with respect to breach of fiduciary duty. Need to explain when the estate trustee may be personally liable during the administration of the estate (i.e. notice to creditors; clearance certificates). 6
Accurate Determination of Estate Assets and Liabilities An estate trustee must as soon as possible acquaint him/herself with the nature and circumstance of the trust property and look into documents and papers to ascertain the condition of the estate. The estate trustees are obligated to undertake an inventory of the estate as part of their fiduciary duties, and must be careful about the extent to which they delegate this function. The estate trustee should keep an itemized list of the assets and collect all of the necessary documentation to substantiate the values of such assets. 7
Solicitor s Fees There is no tariff for solicitor s fees for an estate administration such that the ordinary rules arising from the operation of the Solicitors Act apply to the preparation and rendering of accounts and to the review of those accounts. Amounts incurred to address beneficiaries concerns about the conduct of the estate in the administration of the estate are ordinarily payable personally by the estate trustee unless payment is consented to by the beneficiaries or there is an order made for reimbursement of the fees after the conduct has been examined on a passing of accounts or other court application. It would be wise to highlight that where the estate trustee is, in fact, defending their own interest in the estate the full reimbursement of the legal costs may not be approved by the court. 8
Specific Updates to Checklist 9
Estate Information Return 2011 amendments to the Ontario s Estate Administration Tax Act granted the provincial Ministry of Finance audit, inspection and assessment powers with respect to the application for Certificate of Appointment of Estate Trustees and determination of the estate administration tax. Regulations enacted in 2014 sets out the prescribed information and beginning January 1, 2015 an estate trustee who is applying for a Certificate of Appointment of Estate Trustee is required to file an Estate Information Return within 90 calendar days of the issuance of the Certificate of Appointment. This places an obligation on the estate trustee to provide an inventory of assets to the Minister of Finance and to substantiate the value of the assets. 10
Estate Information Return How does this effect the advice that we give to the estate trustee? The estate information return and its obligations should be discussed with the clients and as a result the importance of how the value of the assets are collected. Deadline for filing the return, type of information required in the return, the potential for audit and assessment and the penalties for not filing the return. Discuss who will be responsible for preparing and filing the estate information return. If the solicitor is preparing the return, then should highlight that the solicitor is relying on inventory, value and information provided by the estate trustee. Need to emphasize to the estate trustee that they need to make sure that they can substantiate the values. Obligation to file an amended estate information return, if necessary. 11
Taxation of Testamentary Trusts Amendments to the Income Tax Act that were enacted in December 2014 (and effective after 2015) introduction of the Graduated Rate Estate (GRE) and the loss of graduated rates for testamentary trusts. How does this effect the advice that we give to the estate trustee? The estate must be designated as a GRE and the designation must be made in the first tax return of the estate. Discuss that the GRE only applies for 36 months. Any subsequent trusts established under the Will (i.e. spousal trusts, family trusts) will be taxed at the highest marginal rate if income is retained in the trusts. Given the complexity of the GRE regime, need to advise the estate trustee to obtain appropriate and accurate tax advice and to retain an accountant that is familiar with estates. 12
Multiple Wills Commonly used for the exclusion of interest in privately held corporations from the application of estate administration tax. However, can also be used for other assets that do not require a Certificate of Appointment of Estate Trustees in order to transfer. How does this effect the advice that we give to the estate trustee? Need to explain the concept of dual Wills and how they are to be administered based on the terms of the Will. Advise them of the limitation of having dual Wills. There may be special tax consequences as a result of creating dual Wills. Inventory of the assets and liabilities need to be done carefully and diligently in order to distinguish which assets belong under each of the respective Wills. 13
Multi-Jurisdictional Issues Very common for the deceased to have some sort of connection to another jurisdiction, especially the United States. Need to investigate if another jurisdiction is going to be involved in the administration process. How does this effect the advice that we give to the estate trustee? If there is another jurisdiction related to the estate, you need to be clear with the estate trustee that you do not practice law in that other jurisdiction and cannot provide tax or other advice in relation to such jurisdiction. Should highly recommend to the estate trustee that they retain counsel in that other jurisdiction, so that he or she can understand his or her obligations. The other counsel should be engaged early in the process, as there could be steps that need to be taken within a short period of time in order to mitigate liabilities (specifically tax liabilities). 14
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