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Dead Give Away: Reforms to the Tax Treatment of Charitable Bequests

Posted in Charities, Estate & Trust, Estate Planning

Individuals often include charitable bequests in their estate planning.  Such bequests are typically structured as:

  • Gifts by one’s Will, where the testator directs his or her estate trustees to make a specific charitable gift on his or her behalf (the “Will Gift”);
  • Gift by the testator’s estate where a gift is made at the discretion of the estate trustees (the “Estate Gift”); and/or
  • Gifts by direct designation where the testator designates a charity as the beneficiary of a RRSP, RRIF, TFSA or life insurance policy (the “Direct Gift”).

Currently, depending on the structure of charitable bequest chosen, there will be different tax consequences.  For instance, where a Will Gift or Direct Gift is made, it is treated for tax purposes as having been made immediately before the testator’s death.  This treatment results in the tax credits arising from the gift as being applicable to the deceased’s final tax return, with any excess credit available to be carried back and applied against the previous year’s tax.  Tax credits resulting from Will Gifts or Direct Gifts, however, may not be used by the Estate.  Consequently, a portion of these tax credits will be wasted where the deceased does not have enough tax due in his or her year of death or the prior year.

Similarly, where an Estate Gift is made, only the estate can claim the donation.  As such, tax credits arising from Estate Gifts will also be wasted where the estate does not have enough tax for the credits to be applied against.  This is the case since the excess tax credits may not be used on the deceased’s final tax return.

Thanks to recent draft legislation, proposed to apply to deaths after 2015, some of these issues may be solved through the provision of greater flexibility in the tax treatment of such charitable bequests.  Under the draft legislation, Will Gifts and Direct Gifts will no longer be deemed to have been made by immediately before death.  Rather, such gifts will be deemed to have been made by the estate at the time the donation is made.  As a result, all donations arising from death, whether Will Gift, Estate Gift or Direct Gift, will be treated as being made at the discretion of the estate trustees.

Provided the donation is made within 36 months of testator’s death, however, the estate trustees may choose whether to claim the donation in the estate (including prior years) or in the individual’s last two taxation years ending at the date of death.  The increased flexibility in the utilization of such charitable bequests may allow for the maximum amount of tax credit arising from these donations to be used by the deceased and the estate, thereby making Will drafting easier in this regard.

For further information on the new draft legislation, and how it also addresses the difficulty in valuing charitable bequests, please read this useful article at written by Cadesky and Associates LLP .

Thank you for reading.

Andrea Buncic

Are Two Wills Better than One?

Posted in Wills

It is said that two heads are better than one, except when those two heads contradict one another, leading to problems.  The same could be said about multiple wills.

The use of multiple wills has become a popular technique in Ontario as a means of reducing estate administration taxes which are payable when an estate trustee applies for a certificate of appointment.  Some assets will require a certificate of appointment to be administered, while others can be administered without one.  When preparing multiple wills, all of the assets that require probate are usually covered by a primary will and the rest of the assets are covered by another secondary will.  Since the 1988 case of Granovsky Estate v. Ontario, the estate trustee is entitled to apply for probate only with regard to one of the wills.  What makes this an appealing tool for drafters is that estate administration taxes need only be paid on the assets governed by the probate will, which can sometimes lead to significant savings.  The disadvantage, however, is that with more moving parts, the likelihood of drafting errors and other problems increases.

A recent article in the October 20th, 2014 edition of the legal news publication, Law Times, discusses this estate planning tool in the context of the recent case of McLaughlin v. McLaughlin et al., 2014 ONSC 3162.  There, a number of drafting problems lead to litigation.  Essentially, the two wills did not get along with one another.  Among other things, the wills duplicated a number of specific bequests, raising the question of whether the gifts should be given once or twice.  A further error was that both of the wills contained an identical revocation clause, the result of which is that one of the wills was revoked on the day it was signed.  Finally, one of the wills omitted the residue clause, creating an intestacy.  The court ultimately rectified the wills in order to get them to make sense when read together.

The Law Times quoted Jonathon Kappy extensively on the subject.  “Each will stands as a full and complete will”, he says.  “Both have to have a residue clause.”  Another issue raised by Jonathon in the article is the problem of how to allocate debts as between the two wills.  “Another potential problem is determining where the debts of an estate should be paid from.  There needs to be co-ordination between the two wills.”

The McLaughlin case has also been the subject of a previous posting by Paul Trudelle.

While multiple wills continue to be a popular choice in Ontario, careful attention must be paid when drafting them to ensure that these issues, and a host of others, are properly dealt with.

Josh Eisen

Ethical Wills and Estate Planning

Posted in Estate Planning, Wills

When you think about what you want to leave your loved ones, is it always the material assets that first come to mind?  Or, is it your wish to want to pass along life lessons, to the same extent you pass along bank accounts and jewellery?

A Last Will and Testament can record dispositive wishes in the case of tangible and intangible belongings, but it does not  pass along stories or advice that are often just as valuable, if not  more, to yourself and your beneficiaries alike.  As observed by David M. Smith in this 2009 blog, your will is often strictly businesslike- addressing who will get your stuff when you die.  An ethical will, on the other hand, is a testament of what you want your survivors to know, not have.

The concept of ethical wills addresses the desire people have to convey their own philosophies and life lessons upon passing.  It may also be an opportunity for a testator to give an apology, provide an explanation of actions taken or not taken, or offer expressions of love, gratitude and encouragement to loved ones.  What an ethical will does not do is dispose of a testator’s assets.  Therefore, an ethical will is not legally binding and there is no formal, legal obligation on anyone to follow it.

While not legally binding, ethical wills help guide and inform your executors and beneficiaries by conveying what is important to you and what you value.  Through the exercise of writing one, a testator may find they more fully and deeply grasp what is important in their life and try to reflect it as best they can in binding, legal documents.

Ethical wills are not always drafted towards the end of life.  They can be done anytime and are usually most relevant at the milestones in life when one reflects on what they have experienced and learned.

Ethical wills have been around as a religious tradition for a long time and are often shared with family and friends while the testator is still alive.

Thank you for reading,

Suzana Popovic- Montag

The OBA’s Brown Bag Lunch

Posted in News & Events

When blogging, I am always searching for new ideas and new subjects to write about.  There is one place that is consistently a gold mine for new and interesting topics in the estates world.  The OBA’s Brown Bag Lunch is a great place to fill your notebook and fill your stomach at the same time, but bring your own lunch!

The Estates and Trusts section of the Ontario Bar Association hosts the Brown Bag Lunch (or “BBL”) each month on the third Tuesday of the month, between 12:00 and 1:00, in various communities around Ontario.  Each of the meetings is connected by conference call, so it truly is a province-wide lunch meeting.  Toronto’s meeting is held at the OBA Conference Centre downtown.  The locations of other meetings in Ontario are available here.

The BBL provides a great forum for discussing issues related to estate planning, trusts, powers of attorney, capacity, probate, estate administration, litigation, and other related subjects.

Anyone can ask a question or raise a discussion point.  If you are stuck on a tricky planning issue or have a question about how to deal with a difficult asset or beneficiary in the course of administering an estate, the BBL is an easy and informal place to put the issue to the group and see what solutions are out there.  It is a great way to keep informed about recent cases, developments in the law, upcoming professional development programs, and other news of interest to the estates bar.  The BBL is also a good way to connect with colleagues and to learn something new.

The BBL is currently being moderated by Noah Weisberg.  If you have any questions about it, you can contact him at nweisberg@hullandhull.com.  The next meeting is on November 18.

All are welcome, regardless of the colour of your lunch bag.

Josh Eisen

Facebook and Apple to Pay for Female Employees to Freeze Eggs – Some Estate Planning Considerations

Posted in Estate Planning, Wills

Within the recent past, the success rates and popularity of conceiving a child through Assisted Reproductive Technologies (“ART”) have increased significantly. Technological advances now make it possible for genetic materials to be frozen and preserved for decades, before being thawed for use in the conception of children.

Both Apple and Facebook have recently announced that they will cover the cryopreservation of unfertilized eggs for female employees as part of their benefits plans. These announcements raise novel estate planning considerations for the female employees who will be freezing and preserving their eggs.

Today’s technology allows the frozen eggs to survive the individuals from whom they were obtained. Accordingly, the wills and trusts of the female employees seeking to utilize this option may need to be updated to anticipate and address issues arising from the potential use of the frozen eggs after their death.

First, the individual’s will or trust should be updated to specify whether the frozen eggs are to be destroyed, used by a spouse, partner or parent, or donated.  If they are to be used by a spouse, partner or parent, the female employee may also need to consider to what extent a child subsequently conceived through the use of her preserved egg(s) after her death are to receive a share of her estate. If not properly considered the child subsequently conceived could be inadvertently disinherited by the terms of an existing will.

In addition, it might be necessary to consider potential impacts this later use of the preserved eggs could have on the administration of her estate. The mere existence of the frozen eggs has the potential to create significant delays to the administration if a portion of her estate must be set aside for this later conceived beneficiary. In some US States they have legislated notice periods, within which the spouse who intends to use preserved genetic materials must communicate their intention in order to prevent such delays to the estate administration.

In British Columbia, the Wills, Estates & Succession Act sets out that a posthumously conceived child can inherit as if he or she had been born in the lifetime of the deceased person if the surviving spouse or person in a marriage-like relationship with the deceased at the time of death gives notice to the personal representative, beneficiaries, and intestate heirs that the person may want to use reproductive material of the deceased to conceive.  The child must be born within 2 years from the death (or longer, if extended by the court) and survive for at least five days.  The deceased parent must also have given consent in writing to the use of his or her reproductive material after death. Ontario’s Succession Law Reform Act does not address this issue.  The federal Assisted Human Reproduction Act also provides that no person can use reproductive material or remove it from the donor’s body after death unless the donor has given written consent.

These are some of the many estate planning considerations individuals should be mindful of when seeking to use this technology. It should be noted that the legal issues created by the use of ART are arising with increasing frequency, we’ve previously blogged on related issues here and here. As the technology and its use is still relatively new, the law in this area is still developing. It will be interesting to see how the law develops over the coming years with the increasing use, no doubt encouraged by the benefits inclusion recently incorporated by Facebook and Apple.

Thank you for reading,

Ian Hull

Reminder:  Simplified Procedures for Small Estates Focus Group – November 4, 2014

The LCO in conjunction with Hull & Hull LLP have arranged a focus group for November 4, 2014 from 2:30 PM until 4:30 PM, at Hull & Hull LLP, 141 Adelaide Street West, Suite 1700, in Toronto (and not from 1:00 – 4:00 as previously advertised). Our recent blogs which outline the proposed simplified procedures can be viewed here and here. Call in access is available, and anyone interested in participating can contact Amanda Rodrigues at arodrigues@lco-cdo.org. We encourage you all to participate!

Be Careful What You Wish For

Posted in Health / Medical

What happens when someone changes his or her mind about medical care after preparing a power of attorney?  A recent article in the Law Times by Judy van Rhijn highlights some concerns surrounding this issue.

In Ontario, in most circumstances, doctors must obtain consent from a patient before administering treatment.  When the patient is not mentally capable of providing consent, medical practitioners must look to that person’s substitute decision-maker to make a choice on the incapable person’s behalf.  By preparing a power of attorney for personal care, an individual can appoint someone to be his or her substitute decision-maker and can provide written guidance as to what decisions should be made in different circumstances.

Ontario’s Health Care Consent Act, 1996 dictates that a substitute decision-maker is to make choices in accordance with the person’s wishes, if known to him or her and if expressed while the individual was capable and over the age of 16.  If not known, the decision is to be made in accordance with the incapable person’s best interests.

A power of attorney for personal care operates by naming an individual to act as substitute decision-maker, but also by recording in written form the grantor’s wishes.

The Act provides that wishes can be expressed in a power of attorney, but can also be expressed in writing in any other written form, orally, or in any other manner.  Subsection 5(3) of the Act sets out that later wishes, if expressed while capable, prevail over earlier wishes.

The difficulty, therefore, is what to do when the person has recorded their wishes in a power of attorney, but then subsequently advises a doctor differently.  The doctor may want to rely on wishes expressed to him or her, often out of context, rather than abide by the choice of the substitute decision-maker, who is legally responsible for giving or refusing consent once the person has lost consent.

As with many difficult problems, communication is the key.  This article reminds us that attorneys for personal care should continue to discuss wishes with the grantor over time.  It is important to understand the grantor’s wishes as they evolve and change with the circumstances.

Better communication between the legal professions and the medical professions is needed as well, so that each can understand their distinct roles in the process, as they continue to be clarified by the courts.  Ultimately, doctors will need to learn a little bit about the law in order to better serve their patients, and lawyers will need to learn a little bit about medical care in order to better help their clients plan for incapacity.

Josh Eisen

Intellectual Property – Why it’s Fashionable to Consider when Estate Planning.

Posted in Uncategorized

Much to the sadness of many celebrities, socialites, fashionistas and even politicians, world renowned fashion designer, Oscar de la Renta, passed away on Monday, October 20, 2014, from complications with cancer.  Mr. de la Renta was 82 and had been intermittently ill with cancer for close to eight years. Mr. de la Renta’s obituary, as published in the New York Times, can be found here.

Born in Santo Domingo, Dominican Republic, in 1932, Mr. de la Renta moved to Madrid at the age of 19 to study art.  Once there, Mr. de la Renta was swept away by the nightlife and lavish lifestyle.  Due to his new expensive tastes in clothing and entertainment, he ended up drawing clothes for newspapers and fashion houses to earn some extra money; however, what started out as a part-time job quickly led to a career in fashion design which would take him to Paris and ultimately New York.  Mr. de la Renta’s designs are known to be worn by celebrities, socialites, and first-ladies alike, and both he and his designs will be missed by many.

Whenever any artist passes away, whether a writer, musician, designer or other, it reminds those in the Estates world of the importance of considering one’s intellectual property when Estate planning.  Just like any other form of property, intellectual property, such as trademarks and copyright, can be bequeathed in one’s Will.  Where well-known and desired to be used by others, the ownership of intellectual property can be extremely lucrative.  For instance, licensing out the rights to use one’s intellectual property can generate significant income.

Additionally, the rights that a person can have in a deceased’s intellectual property can continue for a long time after the Testator’s death.  For instance, section 6 of the Copyright Act provides that the term of a copyright shall be “the life of the author, the remainder of the calendar year in which the author dies, and a period of fifty years following the end of that calendar year”.  Similarly, pursuant to section 46 of the Trade-marks Act, a registered trademark can be renewed for up to 15 years after the original date of registration.  As such, the financial significance of one’s intellectual property should not be discounted when Estate planning.

According to the old adage, most artists only become famous after they’re dead.  While this certainly wasn’t the case for Mr. de la Renta, who likely gave great consideration to his intellectual property when Estate planning, perhaps more of us humble artists should do the same.  After all, you never know – your finger paintings could be the next big thing in 50 years.

Thank you for reading.

Andrea Buncic

End-of-life Wishes Should Be Communicated Early

Posted in Capacity, Elder Law, Power of Attorney

The controversial topic of life support and when to “pull the plug” is likely to ignite debate wherever it is raised. The issue involves aspects of morality, religion, science, and, of course, law. This complicated philosophical enquiry can make decisions very difficult to make, especially at a time when emotions are high.

Whether or not an individual should be taken off life support can promote disagreement among  doctor(s) or medical workers, on the one hand, and family members or friends on the other. In some cases, this is when a “living will” can come into play. In Canada, Powers of Attorney for Personal Care allow us to designate a person to make decisions on our behalf when it comes to decisions regarding our health and care.

These documents often also include clauses outlining what measures should or should not be taken at the end of life. Still, often some guidance from loved ones can be required in making a final decision. These end-of-life decisions are often difficult and many people are not adequately prepared to make them. Making decisions in place of another who is unable to communicate their wishes is a challenging task. Even with their wishes spelled out  in writing, family members and/or friends may disagree as to whether the time is right and the incapable person is ready to go.

Communicating your wishes to trusted confidantes and putting them in writing wherever possible gives some guidance to those around you when the time comes. However, often this is not top of mind, especially for those in good health.

Another important consideration regarding plans upon death includes whether you wish to become an organ donor and what kind of burial you elect. Ontario residents can easily become organ donors by registering online. This is a decision that cannot be made by an attorney for property because the authority of the attorney ends upon death. Burial and funeral wishes in a will may not be very effective as action often has to be undertaken by family and friends before minds are turned to the will. Instead, a directive can be made or wishes can be communicated before death.

For more discussion on Powers of Attorney and other related topics, see our blogs here, here and here and visit our Hull & Hull TV page.

Thank you for reading,

Suzana Popovic-Montag

Hull on Estates #393 – Law reform and small estates

Posted in Hull on Estates, Hull on Estates, PODCASTS / AUDIO, PODCASTS / TRANSCRIBED, Show Notes

Listen to Hull on Estates #393 – Law reform and small estates

Today on Hull on Estates, David M Smith and Joshua Eisen discuss potential legislative developments for easier administration of estates at the federal and provincial level. Here is a Questionnaire released by The Law Commission of Ontario for Ontarians dealing with the subject of small estates. Should you have any questions, please email us at hull.lawyers@gmail.com or leave a comment on our blog page.

Click here for more information on David M Smith.

Click here for more information on Joshua Eisen.

iPhone Wills: There’s No App for That

Posted in Uncategorized

I was recently at a cocktail reception when a young couple asked me about their “iPhone will”. The couple had recently taken their first trip out of the province without their young child and had intended to prepare a will in advance. However, life got in the way, and it was only when they were sitting in the airport that they remembered they had forgotten to prepare a will. Worried about their lack of succession planning, they pulled out their iPhone and drafted a basic document setting out their desires for their estate should anything happen on their trip.

Unfortunately for this young couple, this attempt at drafting a will was likely ineffective. The formalities of a valid will are set out in the Succession Law Reform Act, R.S.O. 1990 c. S.26. For a formal will to be valid, it must be in writing (s.3). Additionally, a will is not valid unless: (i) it is signed by the testator at the end of the document (or their representative); (ii) it is signed in the presence of two witnesses and (iii) the witnesses sign the will in the presence of the testator (s.4(1)).

Certain of these formalities are not necessary where a testator makes a “holograph will”. A holograph will is valid if it is made wholly by the testator’s handwriting and signature without formality and without the presence or signature of a witness (s.6). However, in this case the couple was unable to sign the will (even digitally) due to the limitations of the phone’s program.

We are not aware of any cases that have considered whether a digital signature can satisfy the signature requirements of the Succession Law Reform Act or whether digital “handwriting” can satisfy the holograph will requirements. It will be interesting to see what a Court will decide in a situation where a testator attempts to sign a will digitally.

In conclusion, while it would have been effective for this couple to quickly write (and sign) a holographic will on a napkin, their attempts were foiled by the limitations of their iPhone. While it will be necessary for the Courts of Canada to adapt to technological advancements, for now this is an area where pen and paper remains the safe choice.

Thank you for reading.

Andrea Buncic

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