STEP CANADA DIPLOMA TUTORIAL Wills, Trust & Estate Administration May 6, 2014
The Law of Wills and Will Preparation (Chapters 3,4) Nature of a Will Transfer of property effective on death Formalities of a conventional Will In writing Signed at the foot or end The testator must sign in the presence of two witnesses Two witnesses must sign in the presence of the testator and each other A Will must be revocable methods: Executing a subsequent Will Destruction by the Testator with intent Marriage in all Provinces except Quebec, Alberta (Feb. 1, 2012), B.C. (Mar. 31, 2014)
The Law of Wills and Will Preparation (cont.) Other forms of Wills Holograph Wills must be entirely in the testators handwriting and signed do not require witnesses Recognized in all Canadian jurisdictions except British Colombia Mirror Wills Commonly used by partners who leave everything to each other with a gift over to children or other beneficiaries Mutual Wills Used by individuals who agree to dispose of property in a certain way and also agree they will not change the terms Problematic to draft and enforce Joint Wills Almost never seen today
The Law of Wills and Will Preparation (cont.) Other forms of Wills (cont.) Multiple Wills Used for property in other jurisdictions Probate fee planning (Ontario) International Wills Used to dispose of property in multiple jurisdictions with one Will Not widely used because many jurisdictions do not recognize the convention Recognized by Alberta, Saskatchewan, Manitoba, Ontario, New Brunswick, Nova Scotia, PEI and Newfoundland and Labrador. Must be in writing Signed in the presence of two witnesses and an authorized person
The Law of Wills and Will Preparation (cont.) Testamentary Gifts: Lapse beneficiary gone Anti Lapse statutory gift over Ademption- property gone Abatement nsf- ordering of the shortfall Class Gifts
The Law of Wills and Will Preparation (cont.) Choice of Attorney or Executor Attributes: Trustworthy, able and willing Appreciates the nature of the work and time and effort required Sound judgement Willing to hire professionals not a do it all yourself person Will command respect and avoid conflict Will be fair and understand the need for transparency Who and how many? If only one- name an alternate Will they get along Use a majority or tie-breaker clause Consider a trust company
The Law of Wills and Will Preparation (cont.) Preparing Will Instructions Issues to consider: Testator is the client Undue Influence Suspicious Circumstances Influence of advisor Gifts over and Saunders v. Vautier Per Capita and per stirpes distributions
The Law of Wills and Will Preparation (cont.)
Probate (Chapter 8) Grant of Probate (Certificate of Appointment in Ontario) Know when it is required: to transfer property from third parties to protect Executors (Estate Trustees in Ontario) Be able to explain to clients Needed for: Financial Institutions Real Property Intestacy (Letters of administration) To validate a disputed Will Executor has Authority from the Will effective from date of death
Probate (cont.) Probate Fees Must pay on application May get an advance on accounts with financial institutions to pay Probate tax v. probate fee Rates are Provincial Watch for out of province real property need to understand probate rules across Canada
Joint Ownership and other Planning Issues (Chapter 9) These issues are discussed in Chapter 9 Probate Fee Planning. Although probate fees are not an a planning priority in all provinces the results of property registrations and beneficiary designations can lead to unintended consequences in all common law provinces. These may include: Increased costs of administration e.g. legal fees Lost opportunities for tax planning An altered distribution plan for the beneficiaries Often a result of individuals taking action without legal or tax advice a little knowledge is a dangerous thing
Joint Ownership and other Planning Issues (cont.) Elderly parent(s) and children possible planning pitfalls: Property held jointly: Child dies before the parent disrupts plan of distribution Lost opportunity to income split using trusts Loss of full capital gains exemption on principal residence Tax payable by the joint owners Beneficiary Designations: Surviving beneficiaries take the entire property Limits to extent to which gifts can be structured through a contingent beneficiary designation e.g. testamentary trust for minor grandchildren
Joint Ownership and other Planning Issues (cont.) Before implementing probate fee planning do a cost benefit analysis do the probate fee savings justify the legal and other expenses that may be incurred? Other benefits of reducing the value of an estate: Privacy probate applications are court records which may be obtained by the public Executor fee savings typically a maximum of 5% of the value of the estate assets Savings on legal fees Protection from claims of spouses in respect of property and dependant s relief (also WESA formerly Wills Variation Act in B.C.) effectiveness varies under provincial jurisdiction. Creditor protection Life insurance, RRSP and RRIF proceeds that pass outside of the estate are protected (except possibly from CRA and in some provinces dependents relief claims.
Joint Ownership and other Planning Issues (cont.) Probate fee planning strategies: Designate beneficiaries for Life insurance Policies; Estate is default beneficiary so proceeds would be subject to probate fess and other benefits lost Other advantages creditor protection and immediate liquidity for the beneficiary, also possible to name a trustee for the proceeds Designate beneficiaries for Registered Plans; Above comments apply but creditor protection is not automatic Income tax consequences are important to note. Unless a rollover to a qualified beneficiary is available registered plans are fully taxable at death. However, the plan proceeds will be paid to the named beneficiary in full and the estate is liable to pay the tax. (CRA may claim against the beneficiary if the estate fails to pay or has no assets). Use Multiple Wills; Primarily implemented in Ontario as a result of the Granovsky case
Joint Ownership and other Planning Issues (cont.) Probate fee planning strategies (cont): Hold Property Jointly with right of survivorship; Not to be confused with holding property as tenants in common Issues with parents and children previously discussed No tax consequences to making property joint with a spouse or common-partner, appropriate way to hold assets if the spouse is the beneficiary under the Will. Establish an alter-ego or Joint Partner Trust Available for Canadian residents aged 65 or older Assets may be rolled over at cost Only Settlor(s) may benefit during their lifetime. May be used as Will and POA substitutes
Joint Ownership and other Planning Issues (cont.) Probate fee planning strategies (cont): Gift Assets During Lifetime Use caution and ensure donor has legal capacity Establish an Inter-Vivos Trust Often used to support special needs beneficiaries or to fund education expenses for children and grandchildren No tax rollover into trust and subject to 21 year deemed disposition Eliminate the need for Probate Hold assets not requiring probate Caution how will debts and expenses be paid?
Joint Ownership and other Planning Issues (cont.) Problems with Joint Ownership Conflict between surviving owners and estate beneficiaries Difficulty with severance All joint owners have immediate access to the property may be subject to creditor or spousal claims May conflict with the terms of the donor s Will Out of order death may disinherit family members Tax issues deemed disposition and transfer, income reporting and possible loss of principal residence exemption Requires cooperation of all owners to pay expenses and change ownership e.g. family cottage
Joint Ownership and other Planning Issues (cont.) Presumptions of Advancement and Resulting Trust At common law the presumption of a resulting trust applied to the gratuitous transfer of property unless the presumption of advancement (gifting) applied There is a presumption of advancement with respect to gifts of property to a spouse or from a parent to a minor child which later was extended to include an adult child The presumption of advancement has been altered by statute in many provinces e.g. Nova Scotia and Ontario have abolished it between spouses except with respect to joint property The presumptions may be rebutted by evidence of the transferor s intentions. These should be clearly documented in writing.
Joint Ownership and other Planning Issues (cont.) Effect of the Pecore and Madsen Cases These two 2007 rulings by the Supreme Court of Canada abolished the presumption of advancement between a parent and an adult child but preserved it for transfers to a minor child. The court also found that when property is transferred into joint names with right of survivorship there could be a gift at the time of the transfer ( as before) or there could be a gift only of survivorship that takes place upon the death of the transferor.
Quebec Issues for other Canadians Private law matters are governed by the 1994 Civil Code of Quebec (refer to Chapter 7) Where Quebec Law Matters: An individual owns real property in Quebec An individual moves from or from Quebec An individual has family members of other potential beneficiaries who live in Quebec The Legal Profession in Quebec Lawyers litigate and act in an adversarial environment Notaries must provide information and advice to all parties in a matter or transaction. They prepare and attend to the execution of documents especially real estate transfers and Wills A Notarial Will takes effect immediately upon death and does not require Probate in Quebec
Quebec Issues for other Canadians (cont.) Quebec Law is unique Rules relating to trusts which were only introduced into the Civil Code in 1994 Family Patrimony automatically applies to married couples and those in a civil union (division of property is similar to net family property equalisation in Ontario). Probate is only required for holograph and wills made in the presence of two witnesses and there are no probate fees. Beneficiary designations are not permitted for registered plans under the income tax act (unless issued by an insurance company) DeFacto spouses are not recognised and have virtually no rights or obligations arising from their relationship. Estate planning is vital in this situation. No right of survivorship for joint ownership treated in the same way as tenants-in-common in Common law provinces In the event of incapacity the Mandate must be confirmed by a homologation procedure In the event of intestacy where there is a spouse but no children the spouse gets two thirds and surviving parents, siblings or nieces and nephews are entitled to the remainder
Exam Tips Reread rules and regulations Open book; limited desk space 3 hours includes reading time Be early (rooms available 15-20 minutes before exam time) Allocate time according to marks Full sentences required. Point form responses must be used appropriately (e.g. lead in with a statement followed by a list). Answer the full question. Do not waste time writing out rules and information if not requested or necessary for your explanation. Only provide tax answers if specifically requested Marking at end of May Results in June
Thank you for your participation Gillian M. Musk, MTI, TEP National Director, Fiduciary Trust Management BMO Harris Private Banking