Toronto Estate Lawyer : Hull & Hull Law Firm : Trust Mediation and Succession Planning : Serving Ontario, Ottawa, Mississauga, Hamilton

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In a bit of a departure from recent blogs, today's blog is less of an opinion piece and simply an update for practitioners that has been brought to my attention.  Distributions to non-resident beneficiaries of Canadian estates and trusts have long been subject to sec.116 of the Income Tax Act.  However in a change to its procedure that is certain to create further delay in obtaining a s.116 clearance certificate, the Canada Revenue Agency (CRA) has recently announced that any non-resident beneficiary must be assigned an Individual Tax Number, a Canadian Social Insurance Number, or a Temporary Taxation Number, before such clearance certificate will be issued.  Apparently, the Auditor- General had made this one of her recommendations in her annual report.  Taking the Individual Tax Number as an example, the typical waiting period for such a number (after all paperwork has been filed) has historically been approximately 120 days. The one silver lining is that, if a non-resident benficiary is assigned an Individual Tax Number for an initial distribution, that same number should be used for any further distributions.  Nonetheless, the procedure can be cumbersome in that the non-resident beneficiary must now provide CRA with certified or notarial copies of documentation evidencing his or her name, date of birth, mailing address, and residential address (if different than the mailing address).  Photographic proof of identity must also be tendered.  In addition, a non-resident beneficiary must provide CRA with the tax identification number assigned by the jurisdiction in which they reside for tax purposes.  CRA will apparently accept the usual suspects in any attempt to prove identity: i.e. passports and birth certiciates will be the first choice but driver's licences will likely suffice to satisfy the requirement for two or more certified copies of documents evidencing identity.  The relevant form to obtain an Individual Tax Number is a T1261 which can be obtained at the following link: http://www.cra-arc.gc.ca/E/pbg/tf/t1261/t1261e.pdf. 

Until Tomorrow, 

David

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To carry on with the discussion of trustee/director conflicts of interest: the very stringent duties applying to trustees can clash with the equally stringent duties applying to directors of a corporation, when the trustee and director are one and the same person. Many corporations are speculative in nature. This is fine during a testator's life, but the prudent investor rule, (as discussed in prior blogs and podcasts) may dictate that a speculative corporation is not the best investment for an estate.

Being a director of a corporation may require an entirely different skill set than a trustee, and may require specialized expertise that the trustee may not have. Since often a trustee becomes a director only as an afterthought, it may well be that the testator has not thought through the fact that the same person will need to fulfil both roles. If the executor also happens to be a shareholder of the corporation and keeps the estate assets invested in the corporation, there may be an obvious avenue for argument by the beneficiaries that the director used the estate assets improperly to enrich his interest in the corporation.

Given the risks of conflict, and even the risk of an allegation of conflict which can lead to litigation, an obvious question is whether the executor should become a director at all. At law however, she probably has no choice if the estate holds a substantial or controlling interest in a corporation and the trust provides for the continuation of the business of the corporation. Using those facts, in all likelihood the trustee must become a director to oversee the management of the estate's investment. This obligation cannot be delegated. The obligation to become a director in cases where the estate holds substantial shares in a corporation should not be taken lightly by a potential trustee who may be considering whether to accept the trust.

One way to avoid this conflict would be simply to choose not to accept the role of an executor and trustee at all. In addition to the common law fiduciary duties applicable to directors there are numerous liabilities imposed on them by statute in the corporate, labour, environmental and taxation areas. This is another reason to potentially refuse to accept a role as trustee if it were victate also accepting a role as a director. The following factors, among others, can lead to inherent conflicts of interest faced by a trustee director:

1. Risk - successful corporations, in order to be successful, need to take significant risks, but any executor who takes substantial risks with trust assets is exposing him or herself to complaints by the beneficiaries and potential personal liability.

2. Income/Capital - a corporation will often reinvest income or profit over time in order to ultimately benefit the corporation, but in most estate situations there is an income beneficiary who will take all the income from the trust. The need to pay out income and the fact that an income beneficiary will likely immediately complain if the income stops, can mitigate the corporate objective of ensuring there are sufficient assets in the corporation to grow the corporation over time.

3. Time Lines - corporations are theoretically immortal as long as the corporation is successful. Trusts for the most part have a defined end point, usually the end of life of a specific person. Investing in a corporation over an extremely long term may make perfect corporate sense, but for a trust there may well be different timing considerations in play.

Thanks for reading. Sean. --------