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Listen to Direct and Indirect Approaches to Estate Planning - Part 1

This week on Hull on Estate and Succession Planning, Ian and Suzana start a discussion on their global philosophy toward the estate planning process. There are direct and indirect approaches to capacity and estate planning and in this episode, Ian and Suzana explore these approaches as they pertain to the choice of attorney.

If you have any comments, send us an email at hullandhull@gmail.com or leave a comment on our blog.

Direct and Indirect Approaches to Estate Planning - Part 1 - Hull on Estate and Succession Planning - Podcast #140

Posted on November 25, 2008 by Hull & Hull LLP

Welcome to Hull on Estates and Succession Planning, a series of podcasts hosted by Ian Hull and Suzana Popovic-Montag, that will provide information and insights into estate planning in Canada. From the offices of Hull & Hull in Toronto.

 

Suzana Popovic-Montag: Hi and welcome to Hull on Estate and Succession Planning. You’re listening to episode #140 of our podcast on Tuesday, November 25^th, 2008.

Hi there, Ian.

Ian Hull: Hi Suzana.

Suzana Popovic-Montag: How are you today?

Ian Hull: I’m terrific.

Suzana Popovic-Montag: That’s good.

Ian Hull: It’s a big day today. It’s the founder of our firm’s birthday.

Suzana Popovic-Montag: That’s right.

Ian Hull: Rodney Hull turns something significantly more than 70. I’m not sure what. And it’s a big day for him. So…

Suzana Popovic-Montag: Congratulations Rodney.

Ian Hull: The topic that we wanted to cover today and we don’t know if we’ll get it done in one podcast, so we’re happy to do it in two, would interest I think a lot of listeners on a couple of levels. So we do remind you that you’re free to send some input to us. And e-mail us at hullandhull@gmail.com.

Suzana Popovic-Montag: Or of course, feel free to send us an e-mail at estatelaw.hullandhull.com.

Ian Hull: Alright. So one of the topics that has come up in the past six months in our blog and one that we wanted to sort of flesh out a little bit today was some of our sort of global approach to estate planning and how that dove-tails into the different kinds of contentious matters that can arise. And one of the most difficult contentious matters is when you get into a Power of Attorney fight. When you are fighting over the body, so to speak, while it’s alive. And when you have a person who’s in that grey zone of incapacity, who should control what and so on. So let’s, before we get into how that works, let’s talk a little bit about sort of our global philosophy that we kind of break down when we think about how we’re going to manage people’s estate plans. And we’ve sort of broken it down into three categories: one is the direct; one is the indirect approach; and the third is sort of a meshing of the two.

Suzana Popovic-Montag: That’s right.

Ian Hull: So let’s start with defining the estate planning process as we have with the indirect. What do we mean by that?

Suzana Popovic-Montag: Well that, Ian, I think is more or less what people would recognize as the traditional way of planning an estate. So it’s the documents that you create, for instance, in a Power of Attorney situation, the Power of Attorney document. It is a testamentary instrument, a Will perhaps. Those are the things that we have a comfort level with as lawyers, and probably a lot of lay people as well. Those are those documents that we typically identify with an estate plan.

Ian Hull: So we call them indirect because they are people’s efforts to estate plan or capacity plan without actually talking to anyone typically.

Suzana Popovic-Montag: That’s right.

Ian Hull: Because the document does the talking.

Suzana Popovic-Montag: That’s right.

Ian Hull: When you become incapable, the Power of Attorney does the talking. When you pass away, the Will does the talking. And that’s not to say that people don’t talk about those documents with their beneficiaries and their attorneys before they fall into those categories, those gruesome categories. But that’s how we look at indirect.

Alright. So then let’s step back again and if we’ve got sort of two categories, the indirect, what’s the direct estate planning techniques that we have used in the past that are of some help?

Suzana Popovic-Montag: Well those, Ian, are what we sort of call the eyeball effect planning methods. And we talked a little bit during our last podcast about the family meeting, for instance, as a suggestion of a way to do that, where you’re actually sitting around a table or in some informal environment with your family members and telling them what your plan is. What you would like to happen if something were to become of your capacity. What you would like to do with your estate upon your death. So you’re having that conversation with individuals. You’re looking them in the eye as we say, and explaining to them why you’re perhaps treating them differently than they might otherwise have expected.

Ian Hull: Alright. Well for today, we no doubt will talk in some detail about the family meeting. But we want to remind people that the first probably thirty podcasts of Hull on Estates and Succession Planning really particularize the process in extensive detail. So should they be interested, they’ve got a resource there. We always like to remind ourselves that we have done some hopefully useful things in the past.

Suzana Popovic-Montag: That’s right.

Ian Hull: So this indirect approach and the direct approach, these two options, what do we mean by the sort of third, hybrid option? What are we talking about in terms of the general concepts?

Suzana Popovic-Montag: Well both processes, Ian, are so fluid because they really, you can mold them to whatever your particular circumstances are. And so when we say a hybrid, what we’re talking about is the fact that some plans will have these kinds of informal arrangements where there is the meeting, there is the discussion which will then be turned into some kind of document, the traditional kind of estate planning documents that we typically see. And you’ll gear your particular circumstances to your situation. And so you’ll have maybe a written part, verbal part discussion or whatever it is, and you’ll come to something where its not sort of the, you know, cookie-cutter expectation of either the direct with the family meeting, or ADR or we call it Alternative Dispute Resolution mechanisms, or the actual traditional documentation.

Ian Hull: Okay. So a good illustration I’ve seen in the past with the hybrid approach is that an easy one would be someone does a Will, wants to give their gifts to certain individuals in the family and they tell them that. So they tell them who the executor is and who the beneficiaries are. So that (a) there’s no surprises; and (b) that if there’s some time to get feedback, they may as well do it while you’re alive.

Suzana Popovic-Montag: That’s right.

Ian Hull: So that’s our hybrid analysis.

Okay, let’s spend some time talking about how the indirect, direct and sometimes hybrid approaches are used sort of, let’s put some real tangibles to it, alright? And we talked earlier in this podcast about Power of Attorney litigation and those kinds of fights. Because there is really capacity planning which is Power of Attorneys, and then there’s Will planning. So let’s start with capacity planning and how we can use the indirect and direct form of communication to properly and effectively capacity plan. And let’s use one illustration that comes to mind. The first illustration that comes to mind is choice of attorney. So how are we going to deal with choice of attorney in the two different models?

Suzana Popovic-Montag: That’s a great set-up, Ian, for a discussion and I think, you know, we start of course with an individual saying or doing the planning, doing the determination of who he or she would ultimately want to take care of their affairs if something were to happen to their faculties and their own ability to do so. And so they will have an individual or two probably in mind, or, you know, other family members. They’ll call a meeting.

Ian Hull: Okay, so sorry, we’ll stop there. We’ve picked the person, right? So we’ve done our homework and that’s a personal step that we’re going to take, with maybe consultation. So there is some, that’s indirect because it’s ultimately, we’re not talking to anyone yet, but it might become more direct because we might say, geez you know, I’m thinking of x, y and z with our friends or our trusted advisors, not our family yet.

Suzana Popovic-Montag: Okay.

Ian Hull: Okay? So then you’re saying we need to call a meeting of some sort.

Suzana Popovic-Montag: It’s certainly a suggestion in those circumstances. If you do want to steer away from just having it become a surprise at the end of the day, then you’ll set up that kind of arrangement where you can have these discussions. And I think its really important to have them with your proposed attorneys. In particular, you want to make sure that they know how it is that you would ultimately like things to be handled once you can no longer handle them yourself, and also consider anyone else who might be affected by that decision, and perhaps consider bringing them into it.

Ian Hull: Good, alright. So we’re talking now, we’re leaving it from just this indirect; it will pop into the system when I become incapable and we’re bringing in some direct steps.

Suzana Popovic-Montag: That’s right.

Ian Hull: So let’s break down those two direct steps. The first is you say we should talk to our attorney. Alright, first of all, why would we talk to our attorney? And second of all, what are some of the things that we want to talk to them about?

Suzana Popovic-Montag: Well clearly, the fact that you are contemplating them as an attorney would be one of the first things that you’d want to discuss with them, I’d expect. And then beyond that, how you would like them to deal with this. And how you would like them to, for instance, if its your property that you’re dealing with, you’d like your assets managed during your lifetime. If its your personal care, you would want to discuss what kinds of things are important to you so that if these decisions have to be made one day, they’ll have some ideas as to how you would have liked them to have been executed.

Ian Hull: Well look, I think what we’ve done is we’ve started the process of how we’re going to use the two communication models, direct and indirect. We’re starting to put some illustration to that with the choice of attorney. The next podcast, let’s move on to talking a little bit about with some particulars, what are some of the actual things we’re going to talk about to our attorney. Before we’ve come out to them and once we’ve decided it, we’ve done our testing the waters.  We come out to them, we’ve chosen the person who we’re going to deal with, and what are some of the issues we’ll want to talk to them about. And we can do that both in indirect ways and direct ways, and we’ll talk a little bit about that in our next podcast.

So please, again, we remind you that we welcome and look forward to any feedback you may have. Easiest way to do it might be at hullandhull@gmail.com if you’re liking the e-mail from that venue.

Suzana Popovic-Montag: Or feel free to visit our blog at estatelaw.hullandhull.com.

Ian Hull: Thanks Suzana.

Suzana Popovic-Montag: Thanks Ian.

 

You have been listening to Hull on Estates and Succession Planning by Ian Hull and Suzana Popovic-Montag. The podcast you have been listening to has been provided as an information service. It is a summary of current issues in estates and estate planning. It is not legal advice and you are always reminded to talk with a legal professional regarding your specific circumstance.

 

To listen to other Hull on Estate podcasts, or leave any questions or comments, please visit our website at hullestatemediation.com.

 

/mem

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Listen to Estate Planning for the Newly Separated Spouse

This week on Hull on Estates, Ian and Suzana bring us up to date on what has been happening at Hull and Hull over the summer. Jordan Atin appeared on Canada AM to talk about how to avoid The Family War. They have also added two books to their recommended reading list:

Duct Tape Marketing by John Jantsch

Endless Referrals by Bob Burg

Ian and Suzana then discuss issues to consider in estate planning for the newly separated spouse. They talk about the two different types of claims that can be made: Equalization and Claim for support.

A new Hull and Hull breakfast series will take place on Wednesday, October 8, 2008 and participants are encouraged to attend either via webcast or in person. You can also contact Hull and Hull by leaving a message or question with any of the following:

Send us an email at hull.lawyers@gmail.com, call us on the comment line at 206-350-6636, or leave us a comment on the Hull on Estates blog.

 

Estate Planning for the Newly Separated Spouse - Hull on Estates Podcast #125

Posted on August 26^th, 2008 by Hull & Hull LLP

Suzana Popovic-Montag:  Hi and welcome to Hull on Estates. You’re listening to Episode #125 of our podcast on Tuesday, August 26^th, 2008.

Welcome to Hull on Estates, a series of podcasts for the Canadian legal community dealing with issues and insights surrounding estate planning in Canada.  Hosted by the lawyers of Hull & Hull, the podcast will touch on some key considerations when planning estates and wills. Now, here are today’s hosts.

 

Suzana Popovic-Montag: Hi and welcome to another episode of Hull on Estates. I’m Suzana Popovic-Montag.

Ian Hull: And I’m Ian Hull. And I want to welcome everyone and remind you to please give us your feedback. Call-in number is 206-350-6636, that’s 206-350-6636.

Suzana Popovic-Montag: Or you can feel free to give us an e-mail at hull.lawyers@gmail.com and of course you can visit our blog, our daily blog, at estatelaw.hullandhull.com.

Ian Hull: Well Suzana, we are going to cover a few topics today on Hull on Estates. One of them is our post-Olympic wrap-up, more or less, our summer wrap-up. We’ve had a busy summer here at Hull & Hull. Been working through some new technology on Hull on Estates and Succession Planning. For those of you who are interested, we’re trying to launch and certainly will have up shortly if its not up by the time this podcast is launched, is our other podcast is going to be on YouTube and we’re trying to do it in the format of video and audio. So we’re having some fun with that and trying that out this summer.

We’ve also had a busy summer, our associate counsel Jordan Atin spent the week on Canada AM in early August, having some interviews and dealing with the age-old question of how to avoid the family war. We had a great summer dealing with some of the media. Actually generally at Hull & Hull, one of the things that we were able to do was have an interesting interview with the magazine called CARP. And that’s the Canadian Association of Retired Persons. We were good enough to be quoted in the August, 2008 edition and it was all about the family feud. We talked a lot about some of the different problems that arise in the context of the family feud and the author really dove into, Jennifer Walker was the author of the article. And she talked about the fact that boomers are set to inherit a trillion dollars over the next years, in the next decade from their parents, and dealt with how to plan your estate the right way to avoid the battle royale. So we’ve been spending a lot of time this summer trying to get out our message of equal isn’t always fair and ways to somehow make your intentions clear.

Suzana Popovic-Montag: We’ve also done a lot of reading as well, Ian, as you know. And we’ve added to our recommended reading heading under our web page some of the great books that we’ve come across over the course of the summer, including Duct Tape Marketing, which talks about the world’s most practical small business marketing guide, by John Jantsch as well as Endless Referrals: Network your everyday contacts into sales, a great book by Bob Burg.

Ian Hull: So you can hit our web page under the links and we continue to update our recommended reading list. We’ve got quite a few books on there now. I know I also finished up Blink this summer, The Power of Thinking Without Thinking, by Malcolm Gladwell. And that was one of those books that I read in the spring and then had to re-read parts of it in the summer when I had some more time because it was a terrific book.

So for today’s podcast, we’re going to talk about sort of in brief, some issues to consider in the context of estate planning for the newly separated spouse. We know that historically here in Ontario, we work with a community of property regime. And that regime is consistent throughout many, many, well all provinces and many, many states in the United States. And it is coming into vogue in many other European countries such as in the UK for sure. So this community of property, basically the concept is that a newly separated spouse is entitled to sit down and do the math and the spouses are supposed to equalize their net worth at the end of the day, based on the increasing value during their relationship. Now that’s the historic sort of framework that here in Ontario we are always working from. But we wanted to talk a little bit today about the nature of the claim, who can make that claim and maybe some protective steps that can come about that.

So Suzana, when we’re dealing with the nature of the claim, there are sort of two types of claims that a newly separated spouse may want to consider. The first is what I’ve talked about, and that is the idea of an equalization.

Suzana Popovic-Montag: And the second, of course, is a claim for support under, here in Ontario, the Succession Law Reform Act. And that claim arises in situations where someone, namely a dependant, someone who fits within the definition of that term dependant, can demonstrate that they have not been adequately provided for by the deceased, either in his or her Will, or by virtue of an intestacy.

Ian Hull: And so if we’ve got these two core claims, the equalization claim itself, of course, is made through what is a relatively cumbersome process of sitting down and creating sort of a list of all of your assets and liabilities, looking at the value of those assets and liabilities as at the date of marriage, and then looking at them as at the date of separation. And when we talk about the newly separated spouse, of course we don’t want to forget that a separated spouse could be permanently separated by death, of course. So that calculation comes into our world fairly regularly. And it’s interesting when you do that calculation, how much of a difference the detail makes. And one of the things that we like to tell our clients is that if you are in a situation, whether you are happily married or you about to be newly separated, there is a lot of good reason to keep careful records of your own personal records, because then you can really sit down if you’re forced to this because of an untimely death on a more positive note, sit down and calculate this, you will have your record. So it’s worth holding on to some bank records and holding on to your personal affairs records as best you can.

Suzana Popovic-Montag: And when you talk about records, Ian, I think you’re referring to lists of, for instance, assets and liabilities, as of the date of marriage, so that when it comes to doing this cumbersome calculation at the end of the day, you’ve got a listing of everything that you own, both personal and real property wise, together with mortgages or a listing of all other liabilities that you’ve incurred prior to marriage.

Ian Hull: So that’s the way you make a claim, and you do it, in our jurisdiction, under the Family Law Act. And making a claim as a dependant is done almost similarly. You bring an application into the Court and you put to the Court your circumstances, your financial circumstances. And you apply to the Court for support.

Suzana Popovic-Montag: And one of the things that we try to keep in mind when we’re dealing with newly separated spouses is that whether or not someone has actually been married does matter for the purposes of an FLA or Family Law Act election, whereas a spouse is defined differently under the Succession Law Reform Act.

Ian Hull: And its defined more broadly, which of course is sensible and picks up on things like same-sex relationships, things like common-law relationships. If it’s a relationship of three years of some permanence, the right to pursue a claim is eliminated if you’re in a common-law situation under the Family Law Act but you’re saved, so to speak, or preserved, under the Succession Law Reform Act. So that’s an important, sort of, stepping stone into the process. 

Now one of the things that people often ask us is how important is a domestic contract in both these claims, in the family law context and in the dependant’s relief context? And we want to sort of carefully look at the contract in each situation. In the family law context, obviously if the claim is, if the contract is created in the right environment, I mean by a properly, independently advised situation with lots of disclosure, these contracts when you go to elect, can be very cumbersome and can be very strong and enforceable.

Suzana Popovic-Montag: And you can sort of contrast that to a dependant’s relief situation when you’re making an application for support where, at least here in Ontario, the existence of a domestic contract is one of the factors that a Court will take into consideration when determining whether or not support ought to be awarded. And so we’ve come to sort of view domestic contracts and support situations as not quite as iron-clad as they are in a Family Law Act situation but certainly of persuasive effect for a judge.

Ian Hull: And the culture really is that the domestic contracts, done properly, are seen by the Courts as sensible contractual relationships within a marriage situation or, of course, in situations when you pass away. Most family law contracts will also include a clause to say that you can’t make a claim against the estate. But the culture in a dependant’s relief case, whether you’re married or not married, is very different because the Act simply says you can apply, you can enforce the contracts or you can ignore the contracts. And its funny, I mean the Act expressly says, Section 62 says the Court should take into account the contracts and Section 63 says you can ignore the contracts, or vice versa, I haven’t got them right in front of me, that’s the theme. So the whole concept is that your entitlement can be limited and the last point is that we want to watch very carefully on any of these types of claims, is that we want to press on with some vim and vigour because you have very strict limitation periods. Under the Family Law Act the claim to make an election under the Family Law Act is 6 months from death.

Suzana Popovic-Montag: And under the Succession Law Reform Act its 6 months from the date that probate has been granted.

Ian Hull: So that’s just a summary review of some of the family law considerations in a newly separated spouse. We want to remind everyone that our next Breakfast presentation will be on Wednesday, October 8^th, 2008, that’s the Hull & Hull Breakfast, which we hold 3 times a year. We do it by way of web cast and we do it by way of personal attendance or phone-in. So please feel free to join us in any one of those forums. And if you have any questions about that, you can hit our web page or, of course, call or send us an e-mail at hull.lawyers@gmail.com.

Suzana Popovic-Montag: Or just pick up the phone or leave us a message on our comment line at 206-350-6636. Thanks very much, Ian.

Ian Hull: Thanks Suzana.

This has been Hull on Estates with the lawyers of Hull & Hull. The podcast you have been listening to has been provided as an information service. It is a summary of current legal issues in estates and estate planning. It is not legal advice and you are reminded to always talk with a legal professional regarding your specific circumstances.

 

To listen to other podcasts, or to leave a question or comment, please visit our website at www.hullandhull.com.

 

Our theme music is Upper Structure by DJ AKid  and is courtesy of the Podsafe Music Network.

 

/mem

 

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I recall a good deal of discussion when Leona Helmsley left millions to be held in trust in her Will last year, some of it on the Hull & Hull blogs and podcasts.

Well, the website for Estate Planning for Pets provides some interesting reading in this vein, although the kind of trust established by Ms. Helmsley is obviously rare.  My own eye was drawn to the “for skeptics” section, which admonished professionals to put their clients’ wishes first, not their own priorities.

The point seems to be that rather than focus on one’s own, subjective opinion that money to pets could be used for other purposes, it is more appropriate to consider what happens to the pet if the testator makes no provision.  Absent provision, the pet could end up abused, ignored or euthanized.  Anyone who has lost a beloved pet can probably understand why testators want to soften the blow to a pet who loses them.  

Thanks for reading.

Sean Graham

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Estate planning and litigation professionals are still mulling over how the legalization of same-sex marriage will affect their practices. Even more complex developments may be in the offing. 

An allegedly polygamist community in British Columbia and increased concerns about the possibility of polygamy elsewhere in all but name in other regions of the country raise any number of issues, not only of policy, but also estate planning.

For example, if someone dies leaving multiple spouses but only one legally-married spouse, what advantages would the legally-married spouse have over the others in the division of a contested estate?

How will the fact that bigamy and polygamy remain illegal play out in civil estate disputes?

If proscriptions on polygamy are or become ignored by governments, will the law evolve? And as it did in the case of same-sex marriage, what happens if bigamy or polygamy becomes legal, since families may become large enough that dependant’s support claims could exhaust most estates rendering much estate planning redundant?

Stay tuned and thanks for reading.

Sean Graham

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Dame Anita Roddick, the founder of the Body Shop, gave away her entire wealth, approximately 102 million dollars, to various charities while alive. She only left enough money in her estate to pay the inheritance tax on those charitable gifts. Once the inheritance tax is paid, the value of her estate will be nil.

Roddick had been very vocal about her intentions to give her wealth to charities and called the idea of bequeathing her estate to her two daughters obscene. Prior to their mother's death, her two daughters were interviewed and reportedly relieved to not be inheriting their mother's wealth and supportive of their mother's charitable giving.

Needless to say, Roddick's decision to leave nothing to her two daughters sparked some discussion. David Smith's previous blog on wealthy parents and transfer of wealth discusses some of the concerns such individuals have about estate planning.

Thanks for reading,

 

Diane Vieira

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By my count, in the relatively short history of our website, our firm's lawyers have blogged on the transfer of wealth by the boomers to their children on six separate occasions.  See, for example, this blog and this blog.  And our blogs reflect a trend to report on the subject as the dominant sociological issue in the business media.  See, for example, this piece by Jonathan Chevreau of the National Post.

Numerous surveys have been released as to the intentions of boomers with respect to their estate plans.  The fundamental characteristic is a focus (on those in their fifties) on enjoying quality time with their families and ensuring that their estate plan properly provides for their children both before and after they are gone.  Some have suggested that this "family focus" is a departure from previous generations although I think this is open to question. Nonetheless, the statistics are illuminating, particularly respecting inter-vivos gifts to children. 

Take, for instance, the findings of a Royal Bank of Canada Poll released in November, 2007:

1.  Fifty-seven per cent of Canadians in their fifties have received or are expecting to receive money  from their parents and in-laws;

2.   Approximately three in five respondents in their fifties expect to give money, during their lifetime, to their own adult children; of those, sixty-nine per cent say they will do so because they want to see their children enjoy their lives; seven per cent say that they would not, believing that their children need to earn their own way or wait until their parent dies. 

5.   When contemplating their legacy, seven in ten respondents want to be remembered as a person who enjoyed time with their family. This family focus is also reflected in the finding that four in five of those in their fifties believe that "their children are their legacy."

David M. Smith

 

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Checklists are wonderful things when it comes to the practice of law (list makers would argue that that is true in life as well). In today’s busy practice, a checklist can ease the troubled legal mind.

I was looking at several estate planning information checklists earlier this week. It is worthwhile to highlight some issues/items that can be easily overlooked but which a thorough solicitor should ensure is on his/her checklist:

·         If you are acting for both spouses/partners, advise the clients that you cannot act for one at a later date without the other’s knowledge;

·         Is the estate trustee to manage funds for minors and distribute monies to the guardian for care, maintenance and education of minor children. Who is the guardian;

·         If they can be transferred, who gets air mile/loyalty points. What about transferable equity in hunting/fishing lodges or sports clubs;

·         Joint Assets and the presumption of a resulting trust – is there a clear intention of ownership;

·         For foreign property, consider the necessity of executing a separate will or appointment of a local estate trustee;

·         Ensure every life interest is coupled with a remainder interest; and

·         Ensure any charitable organization named as beneficiary is still in existence and properly described.

Have a great weekend and for all those skiers out there, let it snow, let it snow, let it snow.

Justin

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The oft-repeated phrase "unprecedented transfer of wealth" has been invoked by estate planners and financial advisors alike to describe the pending inheritance by the children of baby-boomers.  But what if they don't inherit that wealth?  Several months back, Warren Buffett raised more than a few eyebrows when he very publicly announced a commitment to benefit the Bill & Melinda Gates Foundation, rather than his children, with the bulk of his estate.  And he is not alone.

Enter "The Trust Fund Whisperer" as Dr. Lee Hausner was described in a recent article in The Globe and Mail (October 16, 2007),  Dr Hausner is a psychologist who, as Siri Agrell so succinctly put it in her article, "is paid to tell families how to avoid screwing up their children with their cash." A lot of cash, that is, if the title of her book Children of Paradise: Successful Parenting for Prosperous Families is anything to go by.  Essentially, Hausner challenges what she sees as a culture of entitlement enjoyed by the wealthy elite by arguing in favour of fostering a strong work ethic. Agrell's article provides a well organized summary of Hauser's approach together with some of her key recommendations such as: (i) paying for expenses rather than transferring substantial wealth to a child during their career building years and (ii) when transferring cash, spreading the payments in three installments over a prolonged period rather than in one lump sum.   

Certainly, trust and estate practitioners play a key role in implementing such recommendations.  The increasing popularity of such estate planning techniques as incentive trusts (detailed in a transcribed podcast and an audio podcast on our website) can be seen as a response to the thesis espoused by Hauser and others. 

Thanks for reading,

David

 

 

 

 

 

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Welcome to my week of blogs! As you may have gathered, lawyers at Hull & Hull alternate weeks when it comes to blogging.  The hope is to provide you with a cornucopia of perspectives on various issues of interest to the estate bar and the profession generally. We try to mix light-hearted topics with serious ones. 

Turning to today’s blog, I read with interest that Pavarotti’s Will was recently opened. The great tenor ultimately succumbed to pancreatic cancer. Pavarotti was colourful both on and off the stage. He was married twice and sired 4 children. It now turns out that Pavarotti’s estate is as rich as his voice.

Pavarotti left the bulk of his estate to his second wife and four children pursuant to a recent June 13^th Will (his youngest and only child from his second marriage is four years old). In a second Will dated July 29^th Pavarotti apparently created a trust in favour of his second wife of approximately €15 million.  This was a surprise to his friends and family.  The second Will dealt with Pavarotti’s three New York apartments as well as personal items, including paintings by Matisse.  The family has denied rumours in the Italian press that Pavarotti’s first and second families were at odds. Like so many, Pavarotti waited until the end of his life to deal with his Estate.  No doubt, the opera star was reluctant to confront his own death (though death looms large in many operas).  

The reading of a Will by family members is often fertile ground for surprise and disappointment. Many testators use a Will to settle old scores, reward or punish behaviour, or favour those who nursed the testator through illness or old age. 

I struggle with whether to advise a client to reveal the contents of his/her Will to family members before death. Overcoming the trepidation to execute a Will is one thing, but to then reveal its contents to family members, who may benefit unequally, is an entirely different matter. For example, a disappointed son or daughter may punish their parents by no longer seeing them or cutting off access to grandchildren.  However, if the Will comes as a surprise after the testator’s death and is a disappointment, the potential for litigation is rife.  A disappointed beneficiary will justify litigation by claiming that they are only doing “what mom really wanted”.  Emotions come into play, judgment becomes clouded, and lawyers are retained. 

In the end, there is no easy answer as to whether to advise your client to reveal the contents of his/her Will.

Ciao, Justin

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Listen to "The Family Cottage and Capital Gains Taxes"
Read the transcribed version of "The Family Cottage and Capital Gains Taxes"

This week on Hull on Estate and Succession Planning, Ian and Suzana discuss different options for dealing with capital gains tax as it pertains to investments like 'The family cottage'.

Click "Continue Reading" for the transcribed version of this podcast.

The Family Cottage and Capital Gains Taxes - Hull on Estate and Succession Planning Podcast #74

Posted on August 21^st, 2007 by Hull & Hull LLP

Suzana Popovic-Montag: Hi, and welcome to Hull on Estate and Succession Planning. You are listening to Episode #74 of our podcast on Tuesday, August 21^st, 2007.

Welcome to Hull on Estate and Succession Planning, a series of podcasts hosted by

Ian Hull and Suzana Popovic-Montag, that will provide information and insights into estate planning in Canada, from the offices of Hull Estate Mediation in Toronto, Ontario, Canada. Here are Ian and Suzana.

Ian Hull: Hi Suzana.

Suzana Popovic-Montag: Hi there Ian, how are you?

Ian Hull: I’m fantastic.

Suzana Popovic-Montag: That’s good.  Are you enjoying the summer?

Ian Hull: Yeah it’s good.  It’s, you know, it’s been a lot of fun and the weather has been good here in Toronto.  And a little hot in downtown Toronto a few days, but managed to get up to a cottage from time to time.

Suzana Popovic-Montag: That’s good.

Ian Hull: Speaking of cottages, let’s continue on with our discussion about cottages.  I know our last podcast, we talked about the cottage experience and really just sort of planning steps. Talked a little bit about what we needed to know about capital gains taxes.  Used that illustration, which is important, where we broke down, if we recall, there was a sale price of $600,000.  We took the adjusted cost base of $80,000.  Got it to the capital gain of $520,000 and then the tax payable on that broken down to about $117,000 to $120,000 in tax. Just to remind us because that was sort of our starting point, as to what do we do about this $120,000 tax payable either on death or before.

And we talked a little bit about the multiple uses that we have in managing this tax and this overbearing amount that has to be funded quickly, either after the transfer or after death. So we used a couple of examples too, about transfers during their lifetime.  And we talked about the gifting approach. And we got through part of the sale idea. But let’s just recap the sale option and maybe work through it a little more carefully.

Suzana Popovic-Montag: It’s a good idea, Ian, because when we were talking, we said that, you know, one of the options available in the circumstances, if the tax liability is going to be too high, is to consider actually selling the property to your family during the lifetime. Because at that point, your going to crystallize the tax liability to you and then deal with setting up any future gains which would then fall to your children or whoever you ultimately leave the cottage to at the end of the day.

Ian Hull: And we crystallized the tax at that point and that really gives you some certainty, both within your own estate planning standpoint and it allows you to not feel the burden of a major tax hit that’ll need to be paid down the road. So one of the things that I’ve experienced is that if you can afford a recreational property, maybe you can afford to give it away earlier or sell it earlier to the next generation. Maybe you can afford to pay the tax early.  And I know that sounds sort of counter intuitive because we live our lives trying to defer tax as long as possible. But in so doing, we also defer the issue.  And it may be that now, while you’re alive, it’s better to deal with it, both from a financial standpoint and from an emotional standpoint and managing the family sort of circumstances. For example, a sale of the property at fair market value to one of your kids might be the answer to bring the whole issue forward.  And it can be a useful tool from an estate planning standpoint. You weigh that against the fact that you’re not doing the classic “defer the tax until you absolutely last moment in time can”. And that’s a balancing I think you’ve got to decide whether it works better or not for your family.

Suzana Popovic-Montag: I think another option to sort of keep in mind too is that if you find that the possibility of having to pay the capital gains tax immediately is gonna pose too much of a cash flow problem to you, then you might consider some, you know, fancy estate planning or inter vivos planning in terms of selling or gifting the property in installments over a period of years, as opposed to just an outright sale at one point in time.

Ian Hull: So how does that work?

Suzana Popovic-Montag: Well, what would happen, Ian, is that a portion of the property would be transferred each year and then the capital gains tax payments would then be spread out effectively over a longer period of time.

Ian Hull: So that’s a more complex way of dealing with the sale, but maybe manageable, more manageable financially.

Suzana Popovic-Montag: And you could alternatively maybe consider selling the property and then taking a mortgage back from your family as consideration if, you know, there’s a fear that they wouldn’t necessarily have enough money to fund the purchase. Then you could set up an arrangement where you’re taking a mortgage back with or even without interest.  

Ian Hull: Okay, so…but what happens if you take the mortgage back and you sell it to your son and you take a mortgage back and there is no interest.  Does that create problems though?

Suzana Popovic-Montag: It could because you could be, you know, viewed by CRA, the tax authority, as doing a preferential share which might have some negative consequences to the family members.

Ian Hull: Right, because if the mortgage, if it bears interest, you have to declare the interest on your tax return even if the interest isn’t paid. So I know CRA will typically just attribute a value, the typical going rate for a mortgage would be “X” dollars and they’ll just attribute that as income to you.

Suzana Popovic-Montag: That’s right.  It’s going to be accrued as opposed to a cash paid basis. 

Ian Hull: Alright, what about another option entirely outside of this.  And maybe a bit outside of the box of what we’ve been talking about, but a living or an inter vivos trust?

Suzana Popovic-Montag: Well, Ian, if you want to transfer future gains in the hands of your children now, but you’re not really ready to give up the control of the property, then one of those options is, as you say, this living or inter vivos trust arrangement.

Ian Hull: So much like a gift of property though, the transfer itself into the inter vivos trust, into the living trust, will trigger an immediate taxable capital gains liability.

Suzana Popovic-Montag: But you can have the structure of the trust set up so that you can maintain control of the property during your lifetime and then have the control pass to your children on your death.

Ian Hull: So again, with no immediate tax liability to them in terms of probate capital gains or Land Transfer taxes, but you can manage the control issue and the tax issues in this living trust arrangement.

Suzana Popovic-Montag:   That’s right.  And that’s one of the benefits of that is, is as you say, the control. Like, you’re dealing with the property, you’re effectively, you know, crystallizing the tax liability, paying it, but you’re not losing necessarily the control over the property.  You can still go to it when you choose to, that kind of idea.

Ian Hull: So another sort of twist on this living trust idea is that the terms of the trust itself could provide a fund for maintenance and repairs to the property.

Suzana Popovic-Montag: And if you do think about setting up this kind of fund, you want to include in that terms that are going to allow the fund to actually grow over time. So that you do in fact provide a sufficient maintenance fund in the future.

Ian Hull: So it’s sort of like a living trust within a living trust.  We’ve got, maybe you put the property into one trust and then you throw some cash into another trust so that it can generate enough money to pay the expenses over time, and that way perpetuate the ownership of the trust into the next generations without being a tremendous financial burden on the next generations.

Suzana Popovic-Montag: That’s right, Ian.  That’s certainly the idea and, you know, we’ve seen many of those kinds of arrangements put into place quite effectively.

Ian Hull: So, again without being too overly tax technical about this, what’s one of the disadvantages of the living trust from a tax standpoint?

Suzana Popovic-Montag: Well from that perspective, one of the problems with the living trust is that all the income and the taxable capital gains are going to be taxed out.   What they call that top marginal rate.  And so the capital gain that, you know, likely wouldn’t be realized until the property is actually sold, but any income that’s going to be generated from investing that maintenance fund is going to be taxed still at that highest rate.

Ian Hull: You know and another issue I was thinking too with trusts is that all the property in the trust is deemed to be sold every twenty-one years for capital gains’ purposes. So that, in and of itself, creates us a new layer of bureaucracy in terms of the management of the trust itself. You’re always going to be triggering this capital gains every twenty-one years, so you’re not going to be able to avoid forever the capital gains within the trust.

Suzana Popovic-Montag: It is generally, though, possible to roll out the property to the trust beneficiaries at the cost base and then avoid any kind of deemed disposition. But that effectively means that the trust then has to be wound up.

Ian Hull: If you’re sixty-five years or older, you also could consider getting into the whole sort of realm of setting up an alter ego trust or a joint partner trust or some of the new sort of trust arrangements and transferring of property arrangements that exist in the estate planning world.

Suzana Popovic-Montag: And what would the advantage of that kind of arrangement be, Ian?

Ian Hull: Well if you are over sixty-five and you meet a certain criteria that the CRA will insist on, this will avoid the capital gains being triggered at the time of the transfer. So you are essentially rolling it into a trust that doesn’t trigger the capital gains, but your heirs, your ultimate beneficiaries, will have to pay the tax on your death.

Suzana Popovic-Montag: So it’s really a deferral it seems, then.

Ian Hull: Yeah.

Suzana Popovic-Montag: And I guess, you know, in those circumstances, you’d be looking to a lawyer to help you deal with these complicated rules that surround these different kinds of trust arrangements and agreements. So that you can come up with some kind of structure that works really to your best advantage, whether that is, you know, crystallizing and paying the capital gains tax now or deferring it to a later point in time or deferring it even to the time of your death.

Ian Hull: Well I agree and, you know, sort of as we wind up today’s podcast, I just…we kind of harkened back to what we sort of see time and time again in estate planning and that is this struggle between dealing with the payment of tax versus dealing with the right, and I say right, the proper maybe, estate planning for the benefit for your family. And the tax benefits don’t always equal the estate planning benefits. The family benefits, the idea that, you know, you want to keep harmony and you want to keep balance within the family.  And if you are governed, and this is sort of we’ve gone through these examples so far just in this example, if you’re governed by tax avoidance or tax deferral in your estate plan, it can be treacherous because there are so many other factors to consider. And if you have the financial resources for the recreational property, it may be that you should step away from the tax liabilities and exposure and start thinking about dealing with these properties, with your family in mind, not the tax person in mind.

Suzana Popovic-Montag: That’s some pretty sound advice, Ian.

Ian Hull: Alright, well listen, thanks very much Suzana and we will go back out into the world of lovely summer here in downtown Toronto.

Suzana Popovic-Montag: Thanks to you Ian.  I look forward to our next podcast.

You’ve been listening to Hull on Estate and Succession Planning with Ian Hull and Suzana Popovic-Montag. The podcast you have been listening to has been provided as an information service. It is a summary of current legal issues in estates and estate planning. It is not legal advice and you are reminded to always talk with a legal professional regarding your specific circumstances.

To listen to other Hull On podcasts, or to leave a question or comment, please visit our website at www.hullestatemediation.com.

Our theme music is UpTempo14 by Gary and is courtesy of the Podsafe Music Network.

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With the long weekend nearly upon us, what better time to discuss the family cottage?

If you transfer your cottage to your children while you are living, you will be deemed to have disposed of it at its fair market value and be liable for the resulting capital gains tax which, depending on how long you have owned the cottage and how much it has appreciated, might be astronomical.

One way of reducing tax liability is to take advantage of the principle residence exemption. In doing so, the size of the capital gain will be calculated using a formula involving the number of years you have owned the cottage and the number of years it has been designated as the principal residence.

Keep in mind, however, that after 1982, spouses could no longer designate different properties as their principal residences and, as a result, consideration should be given to the increase of value in your city residence – if the capital gain on it is greater than on your cottage, designating your cottage as your principal residence may end up increasing, not decreasing your tax liability.

Another option, of course, is to simply allow your children to inherit the property after both you and your spouse have died. At that time, there will hopefully be sufficient assets in the estate to pay the capital gains taxes which arise.

In any event, if you have a cottage which has increased substantially in value, it might be worth your while to discuss ways to reduce tax liability with an expert in estate planning.

Have a great long weekend!
Megan Connolly

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It's tax season. That wonderful time of year for number crunching, hunting for receipts and depending on your situation, hair pulling.

If you are an executor of the estate of a deceased person, you also have the responsibility of filing the deceased's "final return." To borrow from a popular expression, the two certainties, death and taxes, follow each other. Final tax returns for those who die during the period from January 1 to October 31 are due April 30 of the following year.*

While there are no inheritance taxes in Canada there are a number of taxes that arise as a result of your death and must be included in the final return. Some of those taxes include the following:

Capital Gains Tax. For the purpose of calculating tax, the CRA deems a deceased to have disposed of all her capital property immediately before her death. This is referred to as a ``deemed disposition.`` Depending on the deemed proceeds of disposition, there may be a capital gain or loss. Certain types of capital property are exempt from this rule and an expert should be consulted for specific advice.

RRSPs and RRIFs. These tax sheltered investment vehicles lose their status as such at death. When you die, the tax holiday ends and your RRSPs and RRIFs are collapsed. There is a deemed sale of any securities held in the RRSP or RRIF and any income made in the year preceding your death must be included in the final return. There are a few notable exceptions to this rule, such as a spousal rollover and transfers of your plan to minor and/or mentally infirm children.

There are many creative ways of reducing the taxes that surface after your death. The benefits of doing so may be substantial and result in considerable savings for your estate. When you consider the fact that you spend a lifetime building your assets, speaking to a profession about your estate is advisable. Your beneficiaries will thank you.

Jason Allan

*For more information on how to file a final return, visit the Canada Revenue Agency's website 

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Listen to "Estate Planning Issues for Separated Couples"

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During Hull on Estate and Succession Planning Podcast #56, Ian and Suzana discuss the circumstances surrounding separated couples, remarriage and common law separations.

They discuss the impact that these separations have on estate planning including financial, tax and property ownership considerations.

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LISTEN HERE

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During Hull on Estate and Succession Planning Episode #45, Ian and Suzana discuss various considerations that must be taken into account before the drafting of an Estate plan and Will takes place.

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During Episode #43, Ian and Suzana discussed estate planning with a focus on financial topics such as tax planning, multiple will scenarios and family law issues.

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Joint accounts tend to be a common estate planning technique used by and recommended to clients by many allied professionals. Recently, in dealing with a litigious joint accounts matter, Ian and I considered some of the legal issues surrounding the creation of such accounts. We came up with a preliminary list of twelve things that we think should be kept in mind in establishing joint accounts.

Firstly, a joint account can be viewed as a gift as between the parties and this is a legal determination that needs to be made. The onus with respect to proving a gift is on the recipient of the gift after death to show that it was legitimate. There is a presumption at law that the gift is not valid and this must be overcome after death.

Secondly, the onus with regard to gifting needs to be considered in the context of a joint account as a gift given during one’s lifetime needs to be proven by the recipient of the gift and a gift after lifetime, given through a testamentary gifting process such as a Will, needs to be proven by the person that received the gift. There is no presumption that it was obtained by virtue of undue influence.

Thirdly, the presumption of undue influence is a legal concept that applies to joint accounts in particular, as it is presumed that when someone receives a joint account, at law, it can strongly be argued that the recipient of the gift must overcome any factual hurdles that indicate that the gift was received as a result of undue influence as between the two joint account holders.

Fourthly, and lastly for today, there is a presumption of resulting trust and the case law generally states that where someone holds a joint account, at law, the person who put the money into the account is the legal and beneficial owner of all of the money. Again, this presumption of law can be overcome by virtue of the facts and circumstances of the matter, and it may be that it was decided at the time of the account being established that it was to be split jointly.

We’ll discuss the next four legal issues to consider in creating joint accounts tomorrow.

All the best, Suzana and Ian.