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

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Benjamin Franklin said that only two things in life are certain: death and taxes. A third item could be added to the list: Major League Baseball’s All-Star Break. 

Yesterday, the 82^nd Major League Baseball All-Star Game was played: the National League beat the American League, 5-1

I am taking the occasion of the All-Star Break to take a break from our usual blog topics. However, I will refer to the issue of taxes (and baseball).

On Saturday July 9, the New York Yankees’ Derek Jeter hit his 3,000^th career hit. The milestone hit was a home run, caught by Christian Lopez. Some estimate that the souvenir ball may be worth $250,000. However, rather than keep the keepsake, Lopez returned the ball to Jeter!

His good deed did not go unrewarded. Apparently, the New York Yankees gave Lopez luxury box tickets for the rest of the season, including post-season; signed baseballs, bats and jerseys from Jeter, and four premium front row seats to last Sunday’s game.

However, as no good deed goes unpunished, the downside is that the IRS will likely treat the benefits to Lopez as income, and he may be liable for taxes estimated between $5,000 and $14,000.

Enjoy the dog days of summer.

Paul E. Trudelle - Click here for more information on Paul Trudelle. 

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The Ontario Government’s recent Bill 173 (the Budget Bill) deals with, amongst many other things, proposed amendments to Estate Administration Tax Act, 1998 (Schedule 14).

Estate Administration Tax is applied to the value of an estate when the estate’s representative applies to the court for a certificate of appointment of estate trustee (often referred to as probate). Currently, court staff of the Ministry of the Attorney General administer the tax. Bill 173 proposes amendments to the Estate Administration Tax Act to enhance, it has been said, compliance by integrating the administration of this tax with audit and verification functions at the Ministry of Revenue, starting January 1, 2013.

It appears that the proposed amendments include, amongst others, amendments (i) to require an estate representative to give the Minister of Revenue prescribed information about a deceased person, (ii) to provide that it is an offence to fail to give the information or to give false or misleading information, (iii) to authorize the Minister of Revenue to assess taxes imposed under the Act, and (iv) related amendments to provide various rules concerning the administration and enforcement of the Act.

Again, it is being proposed that the amendments will apply in respect of applications for estate certificates that are made on or after January 1, 2013, or on or after such later date as may be prescribed by the Minister of Finance

The standing committee on financial and economic affairs was scheduled to meet on April 21, 2011 to consider Bill 173 and hear submissions on its proposed provisions.

If the amendments to the Estate Administration Tax Act pass, the manner in which the amendments are implemented and the regulations that might arise will be important to follow and consider as they will effect Estate Trustees and advice given by professionals advising Estate Trustees.

Thanks for reading,

Craig R. Vander Zee - Click here for more information on Craig Vander Zee. 

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George Steinbrenner, owner of the New York Yankees, passed away yesterday.  During his 37-year ownership, the flagship franchise won 7 World Series Titles.   Steinbrenner bought the Yankees with a group of investors for $10 million from CBS in 1973.  His personal investment was $160,000, which has grown to an estimated $880 million under his ownership and management.

Because of the timing of his death, George Steinbrenner's estate (estimated by Forbes at US$1.15 billion) could escape the U.S. federal estates tax.  Steinbrenner died during a temporary 1-year lapse period - the tax lapsed at the beginning of 2010, and could not be revived in time to apply to the year 2010.  At 55% on estates worth $3.5 million or more, the straight tax hit would have been about $600 million. 

Of course, his estate's exposure to the estates tax would depend on his estate planning, as noted in this Wall Street Journal article.  But Steinbrenner's death is free of the 55% estates tax, unlike the death of Chicago Cubs owner P.K. Wrigley, whose family had to sell that franchise to fund the tax liability on his death in 1977.  That's fortunate, because according to the Wall Street Journal, the franchise is 95% leveraged in debt to finance the construction of the new Yankee Stadium. 

Steinbrenner's heirs are his wife and children, and the franchise will be apparently be spared succession issues.  Steinbrenner's sons have been managing the franchise since 2007 according to the New York Times.  Steinbrenner's succession plan, which he openly discussed in 2003, appears to be succeeding as with everything else he did. 

Have a great day,

Christopher M.B. Graham - Click here for more information on Chris Graham.

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Yesterday I wrote about Edward Kennedy – I began to wonder about the tax implications on his estate.

Assuming he held $75 million in assets, his estate would have been taxed at a rate of 45% and the bill owing would be $33,750,000. But this is unlikely because much of his wealth was held by trusts which, in Ontario, are separate taxable entities. 

My colleague, Sarah Fitzpatrick wrote in July 2008 about the upcoming changes to the U.S. tax law.  That time is four months away. Congress must act soon; if it does not, taxes on nearly everyone will soar under a plan enacted in 2001 called the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) which provides that in 2011 the tax law that had been in effect in 2000 will reappear.

The estate tax is set to vanish for a year if nothing happens before the end of 2009 as the EGTRRA sunsets in 2010. In 2011, an effective rate of 55% on estates would come into effect.

Only a small number of individuals pay the estate tax each year. In 2007, there were 36,458 estate tax filers – out of 235 million total tax filers that same year in the United States.  . Smaller estates (under $3.5 million) make up the bulk of filers – over 60 percent in years 2002-2007. Large estates (over $10 million), however contributed between 18 and 30 percent of the total revenue in the same time frame.

During the 2008 campaign, President Barack Obama supported permanent extension of the 2009 law – effectively a permanent 45 percent top rate with $3.5 million exemption per individual ($7 million for couples).

Either side of the political spectrum will present different numbers, but what seems certain is that if there is no legislative action in the U.S. in the next few months, 2010 will be a good year for estates. My bet is that the large loophole will be filled quickly, especially as the U.S. operates with a large deficit.

Thank you for reading. Please remember that Hull & Hull is hosting another breakfast seminar tomorrow morning.

Enjoy your Wednesday.

Jonathan Morse - Click here for more information on Jonathan Morse.

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The 2009 federal Budget contains a few items relevant to Estates, particularly with respect to Registered Retirement Savings Plans (“RRSPs”). 

For a thorough review please see the 343-page document.  A Bloc Quebecois amendment to the Budget yesterday evening was defeated; Opposition Party amendments have yet to occur.  Budget speech to approval of the Budget motion could take up to four days.

While there are benefits for first-time home buyers in the Budget, and a host of infrastructure investments, not everyone is happy. Other media view the bad-time Budget as possibly providing the boost we need.

Regarding Estates, the Budget proposes that certain losses now be applied against terminal income – see page 318 of the Budget. The fair market value of investments held in an RRSP at the time of an RRSP annuitant’s death is generally included in the deceased’s income for the year of death. A subsequent increase in the value of the RRSP investments is generally included in the income of the RRSP beneficiaries upon distribution.

Similar rules apply in the case of Registered Retirement Income Funds (RRIFs). 

There is, however, no existing income tax provision to recognize a decrease in the value of RRSP or RRIF investments that occurs after the annuitant’s death and before they are distributed to beneficiaries.

Budget 2009 proposes to allow, upon the final distribution of property from a deceased annuitant’s RRSP or RRIF, the amount of post-death decreases in value of the RRSP or RRIF to be carried back and deducted against the year-of-death RRSP/RRIF income inclusion. The amount that may be carried back will generally be calculated as the difference between the amount in respect of the RRSP or RRIF included in the income of the annuitant as a result of his or her death and the total of all amounts paid out of the RRSP or RRIF after the death of the annuitant.

Assuming the Budget motion passes, this measure will apply in respect of deceased annuitants’ RRSPs or RRIFs where the final distribution from the RRSP or RRIF occurs after 2008.

This change, especially in this uncertain economy, might help to make a weak financial situation a bit more palatable.

Thank you for reading our blogs this week.  Enjoy your weekend. 

Jonathan

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Issues in Estate Administration: Tax Filing - Hull on Estate and Succession Planning Podcast #110

Posted on April 29^th, 2008 by Hull & Hull LLP

Suzana Popovic-Montag:  Hi, and welcome to Hull on Estate and Succession Planning.  You’re listening to Episode #110 of our podcast on Tuesday, April 29^th, 2008.

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.

Suzana Popovic-Montag: Hi it’s Suzana Popovic-Montag.

Ian Hull: Ian Hull.

Suzana Popovic-Montag: And welcome to our podcast. We would just like to take this opportunity at the very beginning to remind you of the fact that we have a call in number for any of our listeners who have any comments on our podcast. Please feel free to call us at 206-457-1985.

Ian Hull: And also I encourage you to send us an e-mail at hullandhull@gmail.com or check out or daily blog which is easily found from our webpage at hullandhull.com.  Well let’s start working through some issues on the estate administration.

Suzana Popovic-Montag: That’s great Ian, we shall, but I just wanted to take a quick opportunity to let our listeners know that by the time this podcast is up, you will have done yet another appearance on a great show that’s called “Strictly Legal”, that is hosted by Michael Cochrane and for people who are interested in hearing Ian speak about issues of Estate and Trust matters in a more general all encompassing fashion, I highly recommend you to that show.

Ian Hull: Well thanks Suzana, its fun, it’s a great show. I’m looking forward to it. It’s thrown up on a video stream after on Business News Network, BNN Network so, it’s good fun.

Suzana Popovic-Montag: Good for you Ian.

Ian Hull: Alright, so where we left off in our last podcast was we were still struggling through some tax stuff because it is tax time here in Canada.  So we get a little focused on that and the easiest, I find, with files, the easiest criticism of any executor administering an estate is that they botched the tax filings or did any of the tax related stuff and so let’s talk a little bit about that.  But also let’s talk about the fact that, you know, again, if you’re not the expert in the tax side of things, get help.

Suzana Popovic-Montag: That’s for sure.

Ian Hull: So we mentioned the T1 terminal income tax return which is due and then we talked a little about how you dovetail in an interim distribution encouraging the party, the executors, I try to encourage my client, the executors. to get the money flowing as quickly as possible, knowing the restrictions that are out there, because there are some, we can’t just simply send it out.  But as soon as is safe, send it out with sufficient holdback. One of the reasons for the holdback is, of course, we have to pay taxes.

Suzana Popovic-Montag: And in addition to the T1 terminal return an estate trustee is going to prepare annually a T3 estate tax return.

Ian Hull: And that’s on estates that are not immediately distributable, so that if the assets are generating income, or there is a trust that is ongoing, or you just didn’t get it filed, the estate administered in the first year, Revenue Canada still wants their tax money on those, on the interest income or the growth and so forth.  So our annual T3 estate return needs to be filed, and that is approximately, again you can expect a Notice of Assessment  approximately six to nine months after that.

Suzana Popovic-Montag: One of the other things that we suggest to our clients to keep in mind after these tax returns have been taken care of, is to consider and to confirm that all CPP death benefits, that’s the Canada Pension Plan death benefits, have in fact been received on behalf of the estate.

Ian Hull: And also here in Ontario, we are forced to consider the issue of additional estate administration tax being paid.  And on this point, I was in Court the other day, not a case that I was involved with, but I was watching and I noticed that there was some argument between the government of Ontario and a big, it looked like a big estate, I didn’t follow all the details, but they were arguing over a refund.  The estate had, in fact, filed, and it turned out they had overpaid, they just basically overestimated the value of a big, big property, paid tax on it, the administration tax on it and then were now going back to the Court to work out a mechanism to get a repayment.  So, as is in life, possession is nine- tenths of the law. It reminded me of the adage that, you know, its always better to be conservative when you are making the filings, on the estate administration tax side because it can be more difficult  to get the money back than it can be to pay the money.  But obviously always being honest throughout the process.

Suzana Popovic-Montag: That’s good advice, Ian.

Ian Hull: I think really at this point, I just want to take a deep breath and look back at what we are doing because, and this is where some clients, we meet some resistance from clients because they sort of see us as trying to cover off too much sometimes. But I really, I often at this point will sit down and prepare a comprehensive reporting letter.  From our standpoint, for sure, we will report throughout.  But this is a good time also for the beneficiaries to receive something in writing directly from the executor.  There is nothing like personal contact, ongoing phone calls is a great idea as well.  Just keeping people up to date, keeping the process personal.  Because this is personal, this isn’t a business transaction, this is a life transaction.  So I always encourage my clients who are executors to pick up the phone or grab a coffee with some of the beneficiaries or even have an informal meeting with them at the local coffee shop.  But most importantly, I also suggest to them that they prepare a reporting letter.

Suzana Popovic-Montag: That is really good advice, Ian because it gives people then an opportunity to sort of see in writing all the hard work that you have done as an executor and the benefit of that, of course, being at the end of the day, when you want to seek compensation for your work as an estate trustee, you will have something to point the beneficiaries to in terms of the work and the hard effort that you have put forward in administering the estate.

Ian Hull: And it really is, it is not just self-serving, I think it is a natural reaction for people to, who feel that they are in the dark, no matter what you are dealing with, in business or, and in this case what is often a family situation.  Dialogue and communication is so crucial and so the more, the better.

Suzana Popovic-Montag: And then just sort of to wrap up the tax discussion that we had we want to turn our minds to the final income tax return and the preparation of that final T3, and then, of course, applying for the final Clearance Certificate in order to give the sort of seal of approval to all the tax filings that have been done to the estate trustee on behalf of the estate.

Ian Hull: Okay, so let’s talk this through a little bit because this is really the final bell for the tax filings, and this final T3 return and the final Clearance Certificate application is so important. Again, I typically will tell my clients unless they are the tax experts that I am not, make sure you send everything to the accountant.  This is the last chance to have sent all of the paper that you think might possibly relate to any of the assets of the estate to the accountant, let them decide what needs to be put to the taxing authority, not you.

Suzana Popovic-Montag: And then, of course, file the return, pay any taxes owing and just make note of the fact that you want to follow up the actual receipt of the Notice of Assessment for that final T3 return and typically that will come in about six to nine months.

Ian Hull: And then, of course, we have the second step and that is, of course, we will be looking for a Clearance Certificate.  But one of the things that people talk about, and without getting overly technical on the tax side, is what do you do when you want to wind up an estate because interest is always going to be accumulating?  And there is an easy answer, again not for my abilities to follow through on the mechanics, but the concept that: say there is a $100,000 left in the bank and you are holding that back to get your Clearance Certificate from CRA.  You filed your final T3 return, everything is really ready to go but there is this one remaining amount of money that is being held back because the accountant said look, you know what, this is a busy account and this individual did a lot of transactions over his lifetime and CRA could always come back and look, and that final look at the Clearance Certificate time, because we have to remember CRA, that’s the last kick they are going to get at it too.  So they typically take a pretty good, careful look at all of the tax activity of the deceased at that time.  But what you can do is, you can allocate the interest income that is being accumulated on the stop date.  So you, say you have some money left, you want to stop the estate, basically stop the clock running, so that you can indeed say it is over to Revenue Canada.  The go forward income accumulation just gets allocated to the beneficiaries.  And as I say, there are certain forms that get filed with the Revenue Canada and so forth to make that happen.  But it is an important step to allow you to bring close to the ongoing treadmill of interest income that is going to be coming in on the money you are holding.

Suzana Popovic-Montag: And that is a really good point to address in the letter that you write to the beneficiaries reporting on the administration of the estate and reminding them that at that point, that stop clock date or whatever you want to call it, at that point forward they have an annual obligation to themselves report that income and pay tax on it.

Ian Hull: And so now we are looking for that Clearance Certificate.  And even if that, as I say, the final distribution hasn’t been made, so you write a letter to CRA, you wait typically, it’s difficult to guess, it might be six to nine months, it might be more depending on the circumstances.  And once you receive that final Clearance Certificate you can send out your final distribution. 

Now one little twist, just as a final comment on the tax side is, is that you want also, I remind my clients to look at whether or not the deceased was a G.S.T. participant or registrant, because there can be special filings that need to be undertaken for that, and make sure that that’s been closed.  So your loop is closed fully on the tax side, you’ve diarized them and then in our next podcast, we are going to talk a little bit about the accounting obligations, not from the standpoint of the government, which we have gone through, it’s going to be hopefully no more tax time once we get in our next podcast, we are going to move into the accounting obligation as between the executor and the beneficiaries.

Suzana Popovic-Montag:  Well that is great, Ian.  Thanks very much.  I look forward to our next podcast.  And just a reminder again for anyone who has any comments about our podcast, please feel free to call us at 206-457-1985 or send us an e-mail at hullandhull@gmail.com or, of course, visit our blog and our webpage at estatelaw.hullandhull.com.

Ian Hull: Thanks Suzana.

Suzana Popovic-Montag: Thanks Ian.

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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Getting Probate - Hull on Estate and Succession Planning Podcast #103

Posted on March 11^th, 2008 by Hull & Hull LLP

Suzana Popovic-Montag: Hi and welcome to Hull on Estate and Succession Planning. You’re listening to Episode 103 of our Podcast on Tuesday, March 11^th, 2008.

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: Just terrific, thanks. How you doing?

Suzana Popovic-Montag: I’m well, thank you.

Ian Hull: So just as a reminder, of course, we have our call in number at 206-457-1985 and if you want to look at our blog, our daily blog, go to our webpage at www.hullandhull.com and our e-mail address at hullandhull@gmail.com. We always welcome feedback and look forward to hearing from anyone who has any comments or wants to engage us at that level.

Suzana Popovic-Montag: So Ian, at the end of our last podcast we were just, sort of, wrapping up some of the preliminary considerations that an estate trustee who comes to meet with a lawyer and the lawyer, him or herself, would consider before actually doing that magical document, that application for probate or a Certificate of Appointment of Estate Trustee. And I just thought maybe before we move into that second phase of this whole process, we might just do a quick recap in terms of the discussions we’ve had over the course of the last few podcasts.

Ian Hull: Well go ahead, I think you’re best suited to recap as we go along.

Suzana Popovic-Montag: Great Ian. We did start, of course, by discussing sort of the difference between an estate where there was a Will that was going to determine how it would ultimately be distributed to the beneficiaries of the estate, and situations where there was no Will. And as we looked into a little bit of the discussions and considerations that people would think about in terms of funeral arrangements for a deceased and we talked about the situation where there are certain remedies that are available to a surviving spouse and what those options would be in the circumstances. We then touched upon briefly some discussions on the custody of children and guardianship of a child’s property in circumstances where a parent has died and we also had an interesting discussion on beneficiaries of an estate and things that would arise during the course of an administration and how we would look for beneficiaries, how we would advise them of their rights and that was a really neat podcast.

You did a solo podcast at one point, I believe it was our 100^th podcast, where you talked about valuation issues and that’s another thing that’s really important in the context of an estate administration. And if I recall correctly, our last podcast we talked about tax returns and considerations that executors and lawyers who are advising them should sort of keep in mind when they are dealing with these situations.

Ian Hull: Great, thanks very much. So now we’re at the point of getting probate. And I wanted to spend a couple of minutes on two fundamental points on this at this point in the process. One is probate itself.  It is typically required by banks and investment institutions and third parties who want confirmation by the Court that this is indeed the last and valid Will of the deceased. So its – and we’ll talk about it throughout this series no doubt, when you need probate and when you don’t need probate. But for the purposes of our discussion today, let’s presume of course we need probate.  An easy example would be if I had an investment account with a couple hundred thousand dollars in it, a bank or financial institution just isn’t going to release it typically without probate.

Suzana Popovic-Montag: And another common example is if there’s real estate. If there’s a house, or a cottage or something like that. In those situations, you’ll typically need probate.  But I think you make a good point about the fact that you don’t always have to. And that’s something that we should keep in mind.

Ian Hull: At this point in the process, typically when you’re going to make this application, the person has died some weeks later, you’re starting to discuss this – it’s not something you move urgently on always. In most cases, you’re maybe even a month or so after the death. So things have settled a little bit and so you want to take a deep breath and I want to encourage my clients to look at the nature of the assets and decide if you need probate at all. And we’ve talked about in past podcasts the fact that you could have primary and secondary Wills so that’s a two Will option. And those two Will options, give me one Will for the assets that need probate, another Will for the assets that don’t need probate, are important tools and you want to make sure you’ve sat down and considered those options because while the probate fee is not insignificant, it’s still 1.5% of the assets of the estate, and anything you can avoid paying in tax is a good thing.

Suzana Popovic-Montag: That’s for sure.

Ian Hull: The other thing that probate triggers, it seems from our practice and yours and my practice is predominately dealing with mediation and litigation in estates, is the fact that the act of applying for probate is often the tipping point in terms of contentious proceedings. As I say, typically we’re at some time down the road, maybe a month or so or maybe more after the date of death. The parties have started to consider their positions and when you go to apply for probate, this is often the time where you have to fish or cut bait.  Are you going to accept the Last Will and Testament being the document that’s being put forward at that time or are you going to challenge it? Are you going to take a run at it, so to speak? So it seems to me anyway, this is a really important turning point to sit back, consider your options, get advice, because the third component of this is, of course, if it isn’t contentious and you’re going to proceed with probate, now the clock is truly on in your fiduciary hat. I mean it’s probably on at law, and we won’t get into too much of that detailed analysis before you get probate, but it is certainly on, you’re a true fiduciary once you apply for probate. So you can’t let go easily and it’s an important turning point from even a non-contentious standpoint.

Suzana Popovic-Montag: Well, Ian, I think with that introduction, maybe we’ll look at some specific procedural requirements that actually arise when you’re trying to apply for a certificate, starting, of course, with deciding in what jurisdiction you’re going to actually file that application.

Ian Hull: And certainly that’s crucial because in a contentious environment, you typically have to commence your proceedings in the place where the deceased died. And obviously in a non-contentious, where you’re just applying for probate, you have to do it where the deceased died.  And in our mobile world, it’s not an easy answer all the time. In Ontario, for example, you can look to Section 7 of the Estates Act to get some guidance.  But what if you’re a situation where you have a person who lives predominately in Florida during the winter and then up in Canada, but lives at the cottage in the summer and then lives at a condominium in the off season, so to speak, and the rest of the year at Florida? There can be some discussions as to where you want to apply for probate. And some tricks of the trade because you may be able to get probate quicker in different jurisdictions. You just have to be careful.  The Local Registrar will ultimately be the one who will decide where it should be brought and I find that it’s not worth getting too cute about where the deceased died, because the Local Registrars are too smart to let us, sort of, take advantage of that.

Suzana Popovic-Montag: And that’s especially the case when there’s a timing sensitivity, like if you want to sell, for instance, a piece of property that’s owned by the estate and you need that certificate quickly, you want to make sure that you’re sort of in the right jurisdiction from the get go, so that there isn’t unnecessary delay because, yes, you’re right, those Registrars are very, very bright.

Ian Hull: So now in terms of the application, we don’t want to go through too much detail, the Ontario forms are particular and across Canada each jurisdiction has their own particular forms. But the one important theme and we’ve applied for probate across Ontario, certainly in different provinces…the one clear theme is back to the Registrars, the Court is very careful about these documents and they literally have to be letter perfect. And if they aren’t, the Local Registrars send them back for corrections.

Suzana Popovic-Montag: Another thing that we definitely run across quite frequently is the fact that a bond is required if the deceased died without a Will or if the person who’s applying to be an estate trustee doesn’t reside in Ontario. Or the different situation, of course, is if you’ve got an applicant who’s a trust company, then they don’t need a bond, so even if they’re not named in a Will, per se.

Ian Hull: And that bonding requirement can be tremendously onerous because…a couple of things; one is, is that you’re putting your own personal assets at risk. Basically, the Court wants to know that if you abscond with the money as an executor, there’s something behind it, some security to make sure the beneficiaries ultimately get their money. And if you haven’t been a named trustee, the Court gets a little more nervous obviously. But bonding requirements are really onerous and the bonding companies, certainly across Canada, are getting very, very tight about when they will issue bonds. The premiums are very expensive and so a lot of the time we’re finding anyway in our practice that we have to turn to the trust industry to step in, in administrations of this nature. And one of the things you always hear is, “Oh my gosh, the trust companies are going to be too expensive.” When you get that answer from you clients, Suzana, what do you typically tell them?

Suzana Popovic-Montag: Well then you say to them, “Well what is your alternative?” and as you say, the bonding requirements are really difficult and as we know, certainly from the profession, that there’s just a few companies out there that will even do it and when they do, it is very expensive.  And typically it tends to be less expensive than having a professional trustee in place.

Ian Hull: And the one great fallacy, too, is that the trust companies don’t charge anymore than anyone else. They can’t. There’s a certain limit to what they can charge. And because they’re in the business, what I have found is, is that I will typically go to the trust company, negotiate the fee before we agree to put them on as the estate trustee. So you get a competitive fee for their services. And in fact, it can often be more competitive than if you went to a local lawyer or accountant because they’ve got an infrastructure set up that is more efficient for them to run an administration than with some. So it’s worth looking into anyway.  I mean, we’ve got some great local counsel and local chartered accountants who will do it in a very efficient way too.  So it’s one of those situations where I just think, when you have a bonding requirement being thrown at you, it’s worth pushing back to your lawyer and saying, “Wait a minute. I mean, okay, I understand the Courts are going to insist on that.  But what alternatives do I have and does the estate have and can we avoid this?” and those are just a couple of suggestions.

Suzana Popovic-Montag: Those are great thoughts Ian, thank you very much. I think that basically brings us to the end of this podcast. Thank you for joining me and 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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Listen to Asset Particulars

This week on Hull on Estate and Succession Planning, Ian and Suzana talk about the importance of keeping track of asset details.

Comments? Send us an email at hullandhull@gmail.com, call us on the comment line at 206-457-1985, or leave us a comment on the Hull on Estate and Succession Planning blog.

Asset Particulars - Hull on Estate and Succession Planning Podcast #98

Posted on February 5^th, 2008 by Hull & Hull LLP

Suzana Popovic-Montag:  Hi, and welcome to Hull on Estate and Succession Planning.  You’re listening to Episode #98 of our podcast on Tuesday, February 5^th, 2008.

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 today?

Ian Hull: I’m just great.

Suzana Popovic-Montag: That’s good.

Ian Hull: So just as a reminder, we have set up easy to get access to our daily podcasts and blogs. Go to hullandhull.com for that, but we’ve also set up a call-in line.

Suzana Popovic-Montag: And what we’re hoping to do is to hear from you there at area code 206-457-1985.

Ian Hull: So we encourage it and hopefully we’ll get some people interacting in this over the weeks to come.

Now we’ve been working through and looking at questions of really, estate administration techniques that we can help assist our lawyers and assist ourselves in the process of trying to work through an estate administration. And of our checklist or things to do in getting things organized before we pass away, one of the things that I keep harping on is trying to keep a running total of your assets and so on. But let’s spend some time today talking about particulars of what we want to have on that list.

Suzana Popovic-Montag: One of the things that I certainly encourage people to keep a list of, Ian, is their insurance policies. Things like insurance on their vehicles, on their home, on their personal belongings, so that these things are put into one place or are easily accessible or at least, you know, you have an opportunity to know that you’ve found everything that you’re actually looking for.

Ian Hull: And that… can be very important. One of the things that people forget is that just because you paid the premium doesn’t mean that the insurance company is going to pay the claim. And you need the policy. This is particularly important with life insurance as well. It’s best to have the policies located in one single spot or easily found in some way, shape or form so that it takes a lot of the burden off your executor when the time comes that they have to move quickly. For example, if you’ve got a car and you don’t know whether or not it’s insured, that’s going to be an urgent issue that you have to deal with.

Suzana Popovic-Montag: And certainly when you’ve got real estate, there are situations where the death of the owner of the insurance policy is going to affect whether or not that insurance company will continue to insure that asset. And so you want to make sure that if there is the requirement for some vacancy permit or something like that, that the insurance company is notified of the change in circumstances so that the insurance does continue to be effective.

Ian Hull: One of the questions that people often ask is, “What do we do with the house now that it is unoccupied if the person has passed away?” And it’s a case-by-case answer and it depends on almost every situation. It depends on the insurance company itself but typically what an insurance company will say is, ‘we don’t want to continue to insure a house that is vacant except if you’ – and then this is where it is case-by-case – ‘except if it is properly being monitored.’ And they’ll often say, ‘we want to make sure there’s first of all there’s maybe a security system in place.’ Another idea that often they say is, is that you guarantee that you’ll check it every day. That way you can preserve the property in the interim while you’re going to get it ready for sale or distribution to the beneficiary but at the same time keep it well insured.

Suzana Popovic-Montag: And just in terms of being well insured, I think that just sort of tweaks me to the fact that if the personalty, or the things that are within the house, that are valuable had otherwise been included in the value of the home for the purposes of insurance and now those things are no longer there, then you want to make sure that what you do have in place is adequate insurance for the house.

Ian Hull: Okay.  So let’s talk just more about this real estate and how…we’ve talked about the insurance aspect…but how we deal with real estate generally.

Suzana Popovic-Montag: And what I think of in these situations when we’re dealing with a piece of property is the real estate taxes that are either outstanding up until the date of death or will have to be paid on a go forward basis.

Ian Hull: And then, as you say, the contents of the house and the valuables and so on, you’ll want to make sure they’re well insured. But you also need to take control and custody over them in some way, shape or form. And so what I often tell my clients is that…go through the house and bring a video camera and video everything in the house - every room, every piece of furniture - so that at the other end of the day if someone says, “Geez, you know I used to have a beautiful chest of drawers in that room and it’s gone,” you have an answer to say, “No it isn’t, it never was there because here’s the video that I took the day after I got the job of being an  executor.” It’s a trick that you can get trapped and you can get caught into and a nice answer to it is if you have the evidence in response to it.

Suzana Popovic-Montag: And that’s so much easier than the suggestion to go and make a handwritten list, for instance, and helps with the identification too, so I think that’s a fantastic suggestion.

Ian Hull: One of the things that you really struggle with, I think, in the whole management of the real estate is when they’re in a commercial or semi-commercial, and I call that semi-commercial as a residential landlord situation. Or commercial landlord situation. What early action steps need to be taken?

Suzana Popovic-Montag: Well, in those situations, Ian, I think it’s always recommendable to look for the lease, to review its terms and to see about contacting the tenants so that in terms of going forward and collecting rent and making any re-direction of payments that are necessary, that you can do that by having this documentation firstly in hand and secondly understand what it provides for.

Ian Hull: And as with any piece of real estate, you want to know what encumbrances are on the property.  For example, a mortgage, sometimes the mortgage is mortgage insured. But if it’s not mortgage insured, you want to look at the terms because some financial institutions might be prepared to re-negotiate the mortgage because the person’s passed away. You might be able to get more favorable terms and so forth. Now that’s all good news, but it’s also probably expected of you as an executor to look into that level of business expertise.

Suzana Popovic-Montag: And when we started this series of podcasts, Ian, we talked about, you know, executors doing their homework.  But this is another illustration of those kinds of things that we’re hoping that people will do during their lifetime in terms of, you know, getting insurance documentation together, getting information about real estate together and here now rental property or leases or mortgages, that kind of stuff. If it’s all together, it certainly will help your executor at the end of the day.

Ian Hull: So Suzana, what happens if the deceased was renting a property, say renting a condominium or an apartment building unit?

Suzana Popovic-Montag: Well, one of the first things that you’d want to do is to contact the landlord and advise them of the fact that the tenant has now passed away and see how you would go about either cancelling the lease and providing vacant premises or otherwise dealing with the interim period until decisions are made as to how to go on.

Ian Hull: And I guess in the right circumstance, you might even want to look at subletting if you can’t get out of the lease arrangements that they were in.

Suzana Popovic-Montag: That’s probably a really good suggestion.

Ian Hull: Okay. This is a bit of a loaded question and we’ll spend more time in future podcasts on this as well, but what do you do if you have an ongoing business?

Suzana Popovic-Montag: Well that really is, as you say, a loaded gun because that’s not something that you can just quickly cancel and put aside and deal with on a rainy day. You actually have to arrange for the continuity and I’d say competent management of the business in the meantime until either you distribute it pursuant to the terms of the Will or you continue to manage it in accordance with the terms of the Will

Ian Hull: And without getting into too much detail in this podcast, you’re right, I mean it’s such a loaded question.  But, you know, in the course of the continuity and creating a competent management team, you probably want to meet with them and create some sort of short term plan of action as to how you’re going to operate the business.

Suzana Popovic-Montag: That’s for sure. And you may also want to review if there’s any buy/sell agreements that are in place, shareholder’s agreements or those kinds of corporate documentation that may provide for how to deal with the situation in the meantime.

Ian Hull: Okay. We are now inching toward that fateful moment of getting probate and we’re not quite there.  But one of the first steps that we want to make sure we’ve got under control is opening an estate bank account. Coincidentally I’m on my way after this podcast to go close a bank account which is full circle on an estate administration. But in this case, we want to be mindful of what’s going to be necessary and:

1. Is opening a bank account necessary? and
2. What are some of the steps we’re going to have to take in that regard?

Now what I often will do is I will send a letter to the bank just advising them, because I don’t have probate. They’ll want probate before they’ll actually open the bank account typically, but I don’t have probate in hand.  But I’ll write them and say, “Look, I’m the executor, here’s a notarial copy of the Will. I look forward to seeing you, my face is now on this file, not the deceased’s.” And it softens the bank up and it gets it ready to sort of deal with an account that is not normal anymore. or is not being dealt with by someone who’s alive. And I send that same to the financial institutions as well, sort of priming everybody to know that I’m coming down the pipe. I don’t have probate.  I’m applying for probate, or if I’m not, in the right circumstances. But typically you’re going to be applying for probate if you’re going to need to get money out of financial institutions. So I’ll just make it clear that I’m applying for probate and you can expect to hear from me shortly. This letter actually does take the account out of the mainstream of the bank operations and flags it in some meaningful way so that they’re going to be ready for you when you get your probate application. It doesn’t take much time and it’s a helpful step

Suzana Popovic-Montag: I think it also helps, Ian, in the event that the account is somehow held jointly with another to put the bank on notice of the fact that one of the joint account owners is no longer alive and there may be consequences that arise from that, if it’s not clearly a, you know, right of survivorship kind of situation.

Ian Hull: Okay. So finally, just because again I’m coincidentally on my way to go do this as well, is the locating and cleaning out the safety deposit box. An important step and again one that you want to document very carefully. I will often just take notes of what I have taken out of the box or make an inventory as soon as I’ve emptied the box, back at the office, of everything that I’ve taken out. Sometimes I’ll even video that moment in time.  That’s not always the case. But you want to make sure that you keep the custody of the documents and whatever is in the safety deposit box under tight reign and control.

Suzana Popovic-Montag: Well I think that brings us to the end of this week’s discussion. Thanks very much to all of our listeners for joining us and thank you for joining me today, Ian.

Ian Hull: Thanks very much Suzana. And again, don’t forget to come to our webpage at hullandhull.com and you can link into our daily blog.

Suzana Popovic-Montag: And we hope to have a little bit of interaction with the comments from the people who are listening and any comments, questions they might have we’d look forward to receiving them.

Ian Hull: So for that number again 206-457-1985. Thanks so much.

Suzana Popovic-Montag: Thank you.

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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Listen to The Potential of The Testamentary Trust

This week on Hull on Estate and Succession Planning, Ian and Suzana continue to focus on testamentary trusts, the most common estate-planning step after the simple will.

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Probate Fees - Hull on Estate and Succession Planning Podcast #69

Posted on July 17^th, 2007 by Hull & Hull LLP

Suzana Popovic-Montag: Hi, and welcome to Hull on Estate and Succession Planning. You are listening to Episode #69 of our podcast on Tuesday, July 17^th, 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: Just great.

Suzana Popovic-Montag: That’s good.

Ian Hull: Beautiful summer day.

Suzana Popovic-Montag: It’s lovely.

Ian Hull: Well, why don’t we talk a little bit today about this topic of probate fees. We’ve touched on it just recently and not only is it a hot topic, but it’s an important topic. We are engaged in cases where litigation can ensue just over the whole question of probate fees.  And a lot of planning gets sort of focused around it.  And as we’ve said in the past and I’ll say until I’m blue in the face, it’s sort of a crazy thing to worry about when it’s approximately 1.5% tax in Ontario jurisdictions and it’s a modest tax in most others in Canada. We’re very different than the US which has a, I would say in some respects, a more draconian tax system.  And therefore most of the estate planning in the US is done pre-death and is set up through trusts and so forth.  So that helps avoid taxes at that jurisdiction. 

But the probate tax is a good illustration of really what is an overwhelming issue for all estate planning.  And we won’t get too Ontario-centric about this, but the problem being that, you know, you want to pass on your estate as tax efficiently as possible. So why don’t we turn and talk about the probate tax and some of the…use it more as an illustration of the kind of issues that arise and what is a constant theme in estate planning and that is, tax avoidance and not tax evasion.

Suzana Popovic-Montag: Very important distinction, Ian. Well certainly from a probate planning perspective, and you’ve just pointed out the fact that so much of the planning is done around avoiding a tax which, at the end of the day, is quite miniscule compared to the legal fees that can be incurred as a result of a poorly planned estate which results from this fancy maneuvering that otherwise, you know, isn’t in retrospect all that very important. But it certainly, you know, I know we always counsel people that it’s much more important to focus on the tax consequences, the capital gains, the income tax consequences of certain assets and what happens to them upon death, as opposed to just focusing on probate fees.

Ian Hull: So in our past podcasts, we’ve discussed the probate itself.  And just to recap a little bit, in a sense, when we have to pay a tax on the probate, we’re paying a tax because we’re getting the seal of approval from the court that this is indeed he last Will of an individual. So in a way, you’re getting what you pay for.  You are actually getting some value for the tax payment. 

Alright so one of the things that when we’re addressing the whole question of paying probate fees, is the triggering event of probate itself.  And while it is never fun to pay a tax, one of the benefits that getting probate does is it starts the clock on claims that can be made against an estate. And so, just coming back to this theme that there is some value added for this tax and the payment of the tax.  One is, is that you’re getting this seal of approval from the court.  And two is, is that at law, you’re actually starting the clock on many claims that can and are often made against an estate.  And that too can bring…I mean it’s a type of insurance you’re paying.  Because, for example, with a dependent’s relief claim, you cannot make a dependent’s relief claim in Ontario beyond the six months from obtaining probate, without some problems.  I mean, there’s no hard and fast rules.  There’s always wiggle room and things like that.  But the basic law is, and the principle is, that you’ve got, the clock starts running when someone stands up and says, hey, I’m executor and I’m ready to administer this estate. And it makes policy sense because you don’t want executors to feel that they’re exposed for an endless period of time when they’re administering an estate. So the law has stepped in and said well, there is only so much time you have before you can make claims.  And one of the trigger starting points when you’re obtaining probate is that you would announce to the world, typically, through an advertisement for creditors.  So you’d start the clock running. And again, as I say, it’s a value add to this tax that you’re paying.

Suzana Popovic-Montag: And ultimately, therefore, protecting the estate trustee and the estate beneficiaries.  So I think it’s an important thing to keep in mind. Another benefit of actually probating assets or probating a Will is that, in addition to protecting the…sorry…

Ian Hull:  So another benefit that might be, we want to look at in terms of this whole idea, you know, as we say, we’re stepping back and saying, should we pay the tax or not? And another benefit would be the whole idea of, and we talked about this in previous podcasts, but let’s…it jump starts the process, it gets the administration going.  The actual act of applying for probate sort of wakens up the process.  And in some cases, people (a) don’t want to deal with the death of a loved one or (b) don’t really want to, aren’t anxious to get that part, they’re not ready to turn the corner.  And what we find with our clients is, we’ll often say is look, you know what, it is a terrible loss that you’ve suffered through. But, you know, after six months or after three months or even shorter, within six months, you have to start to deal with the business side of things. And I always remind my clients that it’s driven, in large part, by the income tax, not the probate tax, but the income tax obligations that an estate has to attend to. And so, you know, sort of pushing someone into probate starts the thinking about how we’re going to deal with what is, in Canada, a primary concern.  And that is, making sure that the deceased’s taxes are paid. Now you don’t need necessarily probate to pay taxes for the income tax purposes.  But again, it’s a trigger point and it gets people, gets the juices flowing, so to speak, and gets people going on what is sometimes a task that they want to push to the side.

Suzana Popovic-Montag: Now we know, Ian, from a planning perspective so many steps are taken by people who try to minimize the value of their estate at the end of the day, so that that tax that they have to pay is as small as possible. But there also are, in addition to, you know, the benefits to applying for probate, there’s a lot of downside to doing a lot of fancy manipulation before, during the lifetime, in order to avoid what could turn out to be quite a minuscule tax at the end of the day. And one of the things that I’m thinking of in particular is the fact that if you start giving your assets away during your lifetime, then you’re putting those assets out of your control and in the hands of someone else who may or may not have the same plan or the same, you know, intention for those assets that you might otherwise have.

Ian Hull: And that goes, that ties right into the whole question of joint accounts.  And obviously, one of the primary reasons why you…what often will happen is you plan around this probate tax is that you create these joint accounts, hoping to simply avoid the probate tax. Without getting into the legalities of all of that, it does…it is an effective step. But again, as you say, the whole issue of control comes into play.  

And the other primary step that people take to avoid this probate tax, so to speak, is, of course, creating the secondary Wills. So what, or some call tertiary Wills or additional Wills.  Essentially you have one Will for the assets that need to be dealt with under probate and you have one Will that don’t. And one example of that is often the corporate Wills.  And it’s funny because what these Wills were set up to do was to create and to give some consistency.  You would essentially create this corporate Will.  And that Will would help avoid any taxes that would be paid on the probate side because you wouldn’t need probate for that specific asset.  And we’ve talked about in other podcasts, there was a case in Ontario that sort of led the way to allow this to happen legally. But it raises a couple of major problems.  We’ve talked about was the fact that a dependent’s relief claim doesn’t get triggered, so there could be claims against the estate if you don’t get probate of the secondary Will. 

And another thing that it raises is that if you have a substantial asset in the secondary Will, you may not want to hide behind the probate fees.  You may, indeed, want probate for that document.  You may want to have the comfort that if your passing over millions of dollars within the corporation, that you indeed have authority to do that.  And it’s just another side issue that comes back to this whole circular problem in that there are no easy answers to avoid these probate taxes.  And maybe what we should be focusing on, instead of creating estate plans that deal with losing control, that deal with expensive steps to avoid the probate tax, maybe what we should be focusing on is accepting that maybe that’s a part of life and that’s a part of the process.  And then, you know, creating our estate plans knowing that that is one of the taxes we’re going to have to pay. But that’s sort of, you know, sort of my own theory.  And I know a lot of estate planners would disagree and they would want to work very hard to avoid this tax.  But boy, we keep seeing more and more problems that get created as a result of the planning around the tax. 

Okay, well so, for the purposes of today, we really wanted to highlight this issue one more time, because it touches on so many assets.  And it touches on real estate based assets, on corporate assets and on bank accounts and so forth.  And as we’ve said before, for example, most institutions require, financial institutions, will require probate.  So it’s one of those things that we can’t necessarily avoid if what most Canadian estates are made up of is typically maybe an RRSP account, maybe an investment account, a bank account and so forth.  And so the probate tax is going to need to be paid. But when you have some creative planning available to you, it’s something that you want to visit, you want to look at what techniques you can step in to avoid the tax.  But keeping in the back of your mind that you don’t want to be penny wise and pound foolish, and create more problems than it’s worth. 

Suzana Popovic-Montag: That’s pretty sound advice.  Thanks very much, Ian.

Ian Hull: Thanks Suzana.

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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Listen to "Tax Considerations for Separated Spouses"

Read the transcribed version of  "Tax Considerations for Separated Spouses"

During Hull on Estate and Succession Planning Podcast #57, Ian Hull and Suzana Popovic-Montag discuss tax considerations to keep in mind within the context of separated spouses.

They cover such issues as tax liability, spousal support and child support deductability and the deductability of legal fees.

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Last week, the Globe and Mail published an article on RRSP Myths, which is a timely subject with the deadline for contributions fast approaching. It dealt briefly with the taxation of an RRSP on the death of its holder.

The general rule is that, upon death, the holder is deemed to have withdrawn all the funds in the RRSP as at the date of death and will be taxed on the entire amount. This means that, generally speaking, the estate of the holder will pay the taxes, not the beneficiary of the RRSP.

The value of the RRSP is required to be reported on the deceased’s terminal tax return as part of his or her income in the year preceding death. Depending on the RRSP’s value and the total income of the deceased in that year, the proceeds of the RRSP might end up being taxed at the highest marginal value.

There are some circumstances where the estate will not be required to pay taxes on the RRSP:

• If the beneficiary of the RRSP is the spouse or common law partner of the deceased, then the RRSP funds can be transferred to his or her RRSP or RRIF, or they can be used to purchase an annuity.
• If the beneficiary of the RRSP is a financially dependant child or grandchild under the age of eighteen, the funds can be transferred to him or her to purchase an annuity. If the beneficiary is a financially dependant, mentally or physically infirm, child or grandchild of any age then the funds can be used to purchase an annuity or transferred to his or her RRSP or RRIF.

Another option is to designate a charity as the beneficiary. While the estate will still be liable to pay taxes on the value of the RRSP, it will be eligible for a tax credit, the effect of which is normally to offset the tax on the distribution.

For more information on these issues, check out the CRA Information sheet on the Death of an RRSP Annuitant.

Have a great day!

Megan Connolly

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LISTEN HERE

READ THE TRANSCRIBED PODCAST

During Hull on Estate and Succession Planning Episode #40, Ian and Suzana discussed issues surrounding the conclusion of the Family Conference, including tax matters, unapproving family members, implementing drafts and bullet-proofing your estate plan.

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Continuing with our consideration of non-tax issues in estate planning, we turn to the reality that, notwithstanding the importance of non-tax issues, taxes are important. We will typically initiate our advice on these tax-related issues by reminding our clients that they need to think "outside the box" and leave the tax issues to the professionals. In our experience, if you let the tax issue drive the advice, you overshadow the non-tax issue at great peril to the family succession plan.

Obviously, an important initial determination that needs to be made at the outset of creating a succession plan is to decide whether or not you plan to pass the business on (to family members or a trusted employee, for example), liquidate the business, or sell the business to a third party.

Once the preliminary determination has been made in respect of the future of the business, then one needs to look at the issues from two important but separate perspectives. One from the ownership vantage point and the other from the managerial view. In family-run businesses it is especially important to separate the two perspectives and to approach the business and succession planning issues from both of these viewpoints on a separate and analytical level.

An example of the importance of separating these two aspects of decision-making is when the ownership of the business is being passes on to younger family members, yet the management is being maintained by existing non-family senior managers.

Another important factor when separating the decision-making process is the question of control. Often, there are three separate aspects of a family-run business, namely, ownership, management and thirdly, and equally important, control. An example would be where a parent has passed on the growth shares of the family business to the next generation, preserved the senior managerial employees and yet has maintained control of the family-run business by holding the voting preference shares.

Given these three important decision-making aspects of most family businesses, one needs to consider the non-tax aspects of how to best manage these three, often opposing, entities within the business plan.

Certainly, in our experience, it is extremely rare to see a family-run business being liquidated as a result of taxes owing. Rather, the family tension or the lack of management of the succession plan is unfortunately the more likely reason for a family business to be liquidated.

Part of the challenge regarding an effective state plan is getting the family history and identifying and working through emotional issues that have the potential to overwhelm the entire estate plan.

One of the most important individuals to identify as you work through the non-tax issues in an estate plan is the individual or the individuals that take on the role of chief emotional officer. In many respects, identifying this individual and using the skills that this person brings to the family unit, can be a crucial step in the management of the non-tax estate planning steps.

In our next blog, we will continue to look at the role of various family members, including the chief emotional officer.

All the best,

Ian & Suzana.