Blog/Journal of a Toronto Lawyer Specializing in Estate & Family Law

As part of estate and tax planning, many people ar...

Robert — Mon, 18 Apr 2005 20:58:00 +0000

As part of estate and tax planning, many people are using joint tenancies and transferring property to their children as a means of planning their estate while alive. However, many of these transfers are open to challenge after the death of the transferor. Other family members will often challenge the transfer on the basis that the Transferor did not really intend the transfer to be a gift - and that the transfer was done merely in order to avoid the payment of estate administration tax with respect to the asset in question.

The disgruntled children (who have not received any part of the "gifted" property) argue that the transferee holds the property received in trust for the estate of the transferor. They base their argument on the basis of the doctrine of the Presumption of Resulting Trust. In many of these transfers, the doctrine will apply and it will be up to the transferee to rebut the presumption by showing that there was clearly an intention to gift.

What often occurs, however, even if a gift were intended, is that there is insufficient evidence to prove the gift and rebut the presumption. As a result, the Courts may find that the transfered property is actually an asset of the estate of the transferor.

In order to ensure the ability to rebut the presumption of resulting trust, the gift should be properly documented. For instance, a deed of gift could and should be prepared,and executed, if indeed, it is the intention of the transferor to make a gift.

Being able to fully prove the gift could avoid long and acrimonius litigation and disharmony in the family.

What is even more worrisome from an estate planning perspective is that recent case law has found that the doctrine of the presumption of resulting trust, may also apply to the designation of benificiary designations for Registered Retirement Savings Plans (RRSPs) and Registered Retirement Income Funds (RRIFs). If this is the case then the donee (the designated beneficiary) will be put on the defensive and be required to prove the gift. This onus may not be easily discharged - with the result that all of the funds from the RRSP or RRIF will also form part of the estate of the deceased.

It is therefore, important to document the gift and the intention to make a gift as formally as possible.

Joint accounts may not be your best option

Robert — Tue, 25 Jul 2006 18:25:00 +0000

Recently the use of Joint accounts - in particular joint bank accounts - has increased as a planning tool. Banks and others are suggesting to elderly and other clients that they consider placing ownership of their accounts in joint tenancy with a child or another person.The main reason seems to be to avoid Estate Administration Tax on the death of the owner of the property.

We should all appreciate that Estate Administration Tax(EAT)in Ontario amounts to a maximum of 1.5% of the value of the property. In my view, it may be preferable to keep your property in your own name and let your estate pay the EAT after you pass away. At least you are not giving up control of your property.

Placing property in joint tenancy is sometimes a reasonable planning tool - for instance when there is only one child and that child is the sole heir, and the death of the parent is imminent. However, even in this circumstance, the most important point to remember is that the only child must be trustworthy. If not, then we should all think twice about transferring the property to joint names.

All too often, positions of trust or privilege are abused. Unfortunately, this is increasingly so with respect to joint accounts.

There have been circumstances where the donee abuses his or her "ownership" of the account and takes part or all of the money, leaving little or nothing for the donor.

Conflict often arises when there are several child beneficiaries, but the main asset of the estate is transferred during the lifetime of the testator to only one child. On the death of the testator there is now much litigation about the "purpose' of the transfer. What is a gift? Was it merely an estate planning tool to avoid paying Estate Admininstration Tax on the death of the Testator. Did the testator intend that only one child have the benefit of that particular asset? Or, was there an expectation that all of the children would benefit?

A simple transfer such as this will result in discord in the family and probably in litigation among the children after the death of the parent - something which the Testator would not want.

In addition, by transferring capital property, you may unwittingly trigger a capital gain, which might result in tax payable immediately. Prior to any such transfer, we must all take some proper tax advise.

A seemingly simple transfer can end up in causing turmoil. Obtain the advice of a solicitor prior to making such a decision.

Remember, when you transfer your property to joint accounts, on the face of the transfer - you have given a susbtantial interest in the property to the other person. If it is your intention for that person only to have a trust interest, then you should consider whether a trust document is necessary.

Certified Specialist in Estate Planning and administration

Robert — Mon, 01 Nov 2004 15:47:00 +0000

Robert Coates has been certified as a specialist in Estate Planning and Estate Adminsitration

Limits to testamentary freedom

Robert — Tue, 25 Jul 2006 18:54:00 +0000

We often are told and many of us believe, that we can write a will to include, or not include, whomever we want. However, the more complex society becomes, the less true that testamentary freedom is complete.

In Ontario atleast, and in other parts of the world, there are some restrictions on testamentary freedom.

For instance, if a testator does not provide for the support of his dependants in his or her last will and testament, a dependant may bring an application for dependant's relief pusuant to Part V of the Succession Law Reform Act. A judge will have broad power on such an application to provide for the support of true dependants as defined in the Act. The judge can set aside property and transfer property. A Judge may make an Order for interim and final support. The support may be periodic or in lump sum. Certain assets (such as RRSP's, pensions and life insurance policies where there is a named beneficiary) will be included as assets available to satisfy the dependant's support.

In addition, if a married testator does not adequately provide for a surviving spouse, the surviving spouse may bring an application against the estate of a deceased spouse - the same right that he or she would have on separation.

In addition, estates are continually under attack by claims made based in quantum meruit, constructive trust and resulting trust.

So, when you plan you estate, take into account your dependants - or those whom the law may deem to be you dependant, before you exclude them or undervalue them. This will perhaps avoid costly litigation to your estate after you are no longer here.

Presumption of Resulting Trust

Robert — Mon, 18 Apr 2005 20:38:00 +0000

Testamentary Life Insurance Trusts - a useful vehicle in the protection of support payments

Robert — Wed, 08 Dec 2004 13:07:06 +0000

Separation agreements often require a spouse, to pay spousal and/or child support. In the separation agreement there is often a paragraph which requires the payer spouse to have in place a set amount of insurance as security for payment of the duty to pay support, in the event that the payer spouse should die before his or her obligations to pay support are complete. In many cases, the separation agreement will require the insurance be payable to the payee spouse.

There are some problems which arise from this arrangement. From the point of view of the payer spouse, they might die just before their obligation to pay support is complete. If this were to happen and the insurance was paid out to the payee spouse, the payee spouse would have a windfall. This is something that the payer spouse is unlikely to want.

A suggestion to deal with this dilemna, is to make the insurance payable to a trustee of a testamentary insurance trust. The trust can be set up, naming a trustee and requiring the trustee to pay the support, pursuant to the separation agreement or court order, so long as required by law. The insurance funds will be paid to the trustee on the death of the life insured payer spouse. The trust can further state that once support payments are no longer required by law, that the balance of the funds held in trust should be paid out as detailed by the payer spouse in the trust deed. So, for instance, the balance of the fund could be paid at that time, to the deceased payor's children, or new partner or spouse.

Life insurance funds paid out to a trustee of a testamentary life insurance trust are not subject to Estate administration Tax (formerly called "Probate fees"). This is a savings to the estate of the deceased on death. In addition, since this is a testamentary trust, the trust will have the benefit of graduated tax rates - and will pay lower income tax than for instance an inter vivos trust.

There are other ways in which a testamentary insurance trust will be useful in your estate plan. I shall discuss these in future.

Other uses of Testamentary insurance trusts

Robert — Thu, 09 Dec 2004 20:19:26 +0000

Testamentary trusts have a multitude of uses. One valuable and creative use of testamentary insurance trusts, is in the protection of support payments.

There are many more uses for a testamentary trust. One of the main uses of testamentary insurance trusts will be where it is intended that substantial insurance proceeds will be paid for the benefit of children or persons who are otherwise vulernerable.

Let's say that you are the owner of an insurance policy on your life in the amount of $500,000.00. For many people, this amount of insurance or more, is not unusual. It may be your intent that the insurance proceeds should be paid to your children when they are older, say when they reach 21, 25, or even 30. If you were to die tomorrow, you would want the money to be held in trust for them, until they are old enough to look after it themselves. You may want the Trustee to have the authority to use the income or the capital, or both for the education, maintenance or other benefit of the children during their lifetimes and to pay the balance to them when they attain a certain age.

Alternatively, you may have aging parents. You may wish the Trustee to hold, invest and use the money for the benefit of your parents during their lifetimes and to pay them the income and so much of the capital as your Trustee deems advisable. The Trustee can be authorized to use the money for a variety of purposes, to ensure that your parents are comfortable and maintained in a good lifestyle.

The Testamentary Insurance Trust can be set up, outside of your will. The beneficiary of the life insurance policy will be the Trustee, from time to time of the trust.

If you use such a trust and the insurance proceeds are paid directly to the trustee, then the funds will not form part of your estate. The funds will be protected from creditors of the estate. No Estate Administration Tax will be payable on these funds. This will be a substantial savings to your estate. In Ontario, Estate administration Tax on all amounts after the first $50,000.00 is 1 1/2% - so on $500,000.00 your estate would have a savings of $7,500.00.

There is also great privacy. Trust documents of this kind are personal in nature and are not likely to become public documents. A will which is submitted to the Court for a Certificate of Appointment of Estate Trustee with a Will, does become a part of the public record. On privacy principles alone, you may wish to create a Testamentary Insurance Trust.

Same Sex Marriage is Consistent with the Charter of Rights and Freedoms

Robert — Fri, 10 Dec 2004 19:56:29 +0000

The Supreme Court of Canada, in a unanimous decision, released its decision with respect to the same sex marriage reference, on December 9, 2004. The Government of Canada had requested an opinion from the court as to whether the proposed law to define marriage, for civil purposes, as the "lawful union of two persons to the exclusion of all others", was within the jurisdiction of the Government of Canada

The Supreme Court gave the opinion that, in pith and substance, proposed section 1 pertains to the legal capacity for civil marriage falls within federal jurisdiction, pursuant to the Constitution Act, 1867. The definition of marriage was not entrenched in the common law definition of marriage as it stood in 1867. Instead, the Could held that the constitution is a "Living tree which, by way of progressive interpretation, accommodates and addresses the realities of modern life. "

The definition of marriage as proposed, is consistent with the Charter of Rights and Freedoms. The government wishes to extend the right to marry to same sex couples. The provision permits this and addresses the government's concerns with respect to equality concerns set out in s. 15(1) of the Charter.

The Court gave a further opinion that religious freedom in section 2(a) of the Charter is broad enough to protect religious bodies from being compelled to perform religious or civil same sex marriages, that may be contrary to their religious belief.

There is therefore now no legal bar to the Government of Canada's bill soon to be introduced to amend the Marriage Act.

Multiple Wills may be a useful planning tool for your estate

Robert — Thu, 09 Dec 2004 20:47:21 +0000

Upon a review of your estate assets, it may become apparent that your estate would benefit from the drafting of multiple wills.

Often, if a testator has property in more than one jurisdiction, he or she may determine that it is best to have one will for each jurisdiction. Care must be taking to co-ordinate the drafting of these wills, to ensure that all of the property, worldwide, is given away and that one will does not, unwittingly, revoke the other will.

There are other circumstances where more than one will may be drafted, in Ontario, to deal with assets located in Ontario. An example will be where the testator is the owner of shares in a private corporation. Let's assume that the value of these shares is $5,000,000.00. If this value is part of the estate for the calculation of Estate administration Tax, the estate would have to pay tax of approximately $75,000.00.

What can be done is to draft one will for the shares in the private corporation and a second will (which is the will that will be submitted to the Court for a Certificate of Appointment of Estate Trustee with a Will). You will pay Estate Administration Tax only on the assets governed by the second will. Generally, the shares in the private corporation can be dealt with without the necessity of obtaining the Court issued certificate of appointment.

Multiple wills make sense in this case.

RRSPs protected from creditors

Robert — Mon, 22 Nov 2004 20:46:18 +0000

A recent decision of the Court of Appeal for Ontario is important to those who wish to plan their estates and especially to those who may have substantial debt and numerous creditors on and prior to their death. In a case known as Amherst Crane Rentals, v. Perring, - the Plaintiff and appellant was a creditor of the estate of the deceased. The respondent was the widow of the deceased. Before his death, the deceased had named his wife as the designated beneficiary of his two RRSPs. On his death, she received the full value of the two funds.

The Respondent was owed a substantial sum by the deceased and sought to attach the RRSP proceeds, in payment of its claim.

At trial, Justice Cameron found that the RRSPs did not form part of the estate and as a result the funds were not available to creditors. He found that the funds devolved directly to the named beneficiary of the funds. Indeed, the funds, in this particular fact situation, do not flow through the estate but are paid directly to the named beneficiary.

The Court of Appeal was in agreement with Justice Cameron. In their unanimous ruling, the Court found that Section 53 of the Succession Law Reform Act was drafted very similarly to the wording in Section 161(1) of the Insurance Act. The latter section had been dealt with by the Supreme court of Canada in a case known as Kerslake v. Gray. In that decision, the Supreme Court of Canada had held (in 1957) that a Personal Representative had no claim against insurance proceeds where there was a named beneficiary of the insurance proceeds, other than the estate. Since that decision had not been overruled since it was decided, the Court of Appeal felt compelled to give section 53 of the Succession Law Reform Act similar interpretation.

As a result, subject only to a successful appeal to the Supreme Court of Canada, where you have named a beneficiary to your RRSPs and you die, your creditors can not compel payment from the beneficiary.

This finding will be useful to estate planners with respect to planning for bankrupt estates or planning to protect assets in an RRSP. This is especially important since RRSP funds may be one of, if not the largest assets, in a person's estate.