This week on Hull on Estates Suzanna and Ian review the pullout in March 18th's New York Times and talk about the importance of dialog before and after death.

Comments? 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.

Posted on May 13^th, 2008 by Hull & Hull LLP

Suzana Popovic-Montag: Hi and welcome to Hull on Estates. You’re listening to Episode #110 of our podcast on Tuesday, May 13^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:        Hello and welcome to Hull on Estates. It’s Suzana Popovic-Montag here with Ian Hull. Hi, Ian.

Ian Hull: Hi, Suzana, how are you doing?

Suzana Popovic-Montag: I’m good, thank you, how are you?

Ian Hull: Great, happy to be on Hull on Estates this week and want to just remind everyone that we have a, encourage of course, a call-in number, at 206-350-6636.

Suzana Popovic-Montag: And that number you’ll find also in our show notes as well as our e-mail address which is hull.lawyers@gmail.com if you’d like to send us your comments by e-mail.

Ian Hull: Well, Suzana, we’ve got a couple of things we want to cover this week on Hull on Estates and our companion podcast dealing with estate administration issues right now. We’ve been talking about how an estate should be administered and giving some thoughts and sort of a mini-series on that. And I thought it might be fun today to talk about a couple of things relating to the dialogue that we think we should encourage and we certainly encourage with our clients, both before death and after death, before death with their family and then after death with the beneficiaries. But before we get to that, why don’t we spend a minute or two here talking about the

wonderful news about our good friend, Terry Fallis.

Suzana Popovic-Montag: Terry has self-published a novel and that’s a really impressive accomplishment on his behalf which has now won him the Leacock Award.

Ian Hull: Now for those of you who don’t know anything about the Stephen Leacock Award, it’s called the Stephen Leacock Medal for Humour and Stephen Leacock, who, actually in his day, he was described as someone more famous than Wayne Gretzky is today to Canadians. He was known throughout the world. In the early 1900s when you spoke of Stephen Leacock, many people around the world would have heard of him before they would have heard of a prime minister in Canada. But, obviously a great novel writer and a humourist, and every year there is an award that is handed out in his honour. Terry Fallis was short-listed and then ultimately won the Leacock Award for his book, “The Best Laid Plans”.

Suzana Popovic-Montag: And Terry’s book is actually a story about a reluctant political candidate who consents to run in a federal election on the condition, of course, that he won’t campaign, give any kind of media interviews or canvass door-to-door.  And it’s an amazingly well-written book that really does deserve, in my humble view, this wonderful award.

Ian Hull: And one of the neat things about this is, one of the many neat things is obviously Terry’s a terrific writer and a great humourist.  But what he did was, the classic publisher route he did not follow. He went the social media route and Terry’s obviously on the cutting edge of social media work, generally, and a real mentor to us in the podcasting world here for us. But he self-published his book.  He also has his book on the Internet for free in audio form.  So he has all of the chapters which he read and published on the Internet.  And the remarkable thing, obviously, of winning the Leacock Award is tremendous, but to be coming out of a self-published environment is unheard of, and really a testament to what Terry has been able to do in the social media world. I know the president of Thornley Fallis, Joe Thornley, is another incredible social media expert and I understand that he is going to be speaking out in Calgary where Suzana is also a speaker in the fall, at what looks to be one of the leading social media conferences for professionals and for others who are interested in getting into the social media workforce with a business slant. But Terry turned the business model to perfection because he talked about his book, he blogged about his book, he self-published his book, he published the book in audio, he did all of the sort of core steps that the social media environment allows for. So, tremendous success for him and an exciting time for him, no doubt and him and his family.

Suzana Popovic-Montag: Congratulations, Terry. We’re very, very happy for you.

Ian Hull: Alright, so what we thought we might talk about today was something that we’re going to get actually put on to our webpage.  And it came out of The New York Times.  It was a special section on wealth and personal finance. It came out on Tuesday, March 18, and I was alerted to it before it came out and picked up a copy of The New York Times because it looked like it was going to be a fascinating special section.

Suzana Popovic-Montag: And it really is, Ian. Flipping through it, it really is a great synopsis of our whole area and it captures all the main headings in terms of the estates and trust planning, the inter-generational transfer of wealth, and finance management, and I just highly recommend it to anyone who is able to pick up a copy or to refer to it on our website.

Ian Hull: And we’ve been talking a lot in our other podcasts, but also in this one, that, you know, from our perspective anyway, communication is crucial and this pull-out section from The New York Times really is a great summary. As I say, we’ll get it up on our webpage in the next little while. It’s a great summary of the different approaches that are going on. We’ve also always said and it appears to be as true as we’ve said it, is that the U.S. are so far ahead of us on talking about wealth management, wealth and inheritance talking in that sense, and really talking about the values of money. The first article in the section is entitled, “Breaking the Silence”. And talking, really, from a standpoint of motivating the family.

Suzana Popovic-Montag: And what I thought was amazing is the statistic that is actually set out there that says that there is going to be the largest inter-generational transfer of wealth in American history now underway.  And the Boston College Centre on Wealth and Philanthropy has actually estimated, Ian, that $41 trillion is going to change hands by the year 2052.

Ian Hull: So, you know, given these numbers in the U.S., we continue to obviously pale in comparison in terms of the Canadian experience.  But, you know, we continue to encourage our clients to talk about, you know, getting into, entering into discussions because these discussions need to take place against the backdrop of changing estate and tax laws, innovative tax instruments that are now available and, you know, using what is out there, and that’s the sort of an army of newly trained and well trained wealth advisors.

Suzana Popovic-Montag: We also have to recognize the fact that the reality is that there is a lot of upheaval and family discord that’s out there, and this complicates the planning mechanisms that are actually implemented by these advisors.  And so the reality is there is going to be divorce, there is remarriage, there is adoption, there are different kinds of domestic partnerships that have become sort of the norm, and all of this is taken into effect and into consideration in the planning mechanisms.

Ian Hull: And you look at it, and in one of the articles in the pull-out section there’s a…Patricia Angus is quoted and she’s a principal of a wealthy advisory service in New York and this is a classic definition. She defines wealth as the following: The definition, she says, is broadening to include not just financial capital but human, social and intellectual capital.

Suzana Popovic-Montag: And then she says that the professionals used to think that it was just, how do I go about transferring my financial assets at the lowest tax cost? Now actually people are asking, well what’s the purpose and the meaning of what it is that I’m doing here and how do I want to pass this down to the next generation or further generations?

Ian Hull: And she makes a great point that it really…it’s not about death, it’s about an experience in life and an opportunity to talk to your family about purpose and values that might not otherwise come up.

Suzana Popovic-Montag: And for people who just write a document and put it in a drawer to be opened up then on their death, it doesn’t foresee or doesn’t take into account the opportunity that you can have that would arise by speaking during your lifetime about your plans.

Ian Hull: So as we work through this section, you know, obviously we’re struck by a couple of the other articles. There’s a great article talking about, it’s entitled, “Protecting Children From Their Money” and the sort of parental distress that comes with situations where parents have accumulated a fair amount of wealth and have indeed begun to pass it down. But there’s a wonderful article as well that sort of works through this whole breaking of the silence of inheritance, and the author goes through specifically and talks to wealthy individuals. There’s one point in the article, a Mr. Rothenberg who had received $10 million in the sale of his company, the company I think was called Syracuse Language Systems that they refer to. And he then set up a charitable foundation and a community foundation for his three children to run, and that was set up with just under $5 million.

Suzana Popovic-Montag: And then with some of the remainder of his funds he started a company that he actually called the Glottal Enterprises which makes speech aids for people who are hearing impaired.  Again, it’s a small company that loses money, he called it, at the time.

Ian Hull: But he wanted to do something different and he even notes in the article, he’s quoted, he jokes about the fact that he’s sure his children wanted more of the money themselves, but he has created two separate foundations. He’s created an important legacy from his perspective. 

So, anyway, as I say, we’re going to put this on the webpage so that you can have an opportunity to enjoy some of this, but feel free, obviously, The New York Times online, and as I say, it’s on the March 18, 2008 pull-out section called “Wealth and Personal Finance”. But I highly encourage it and good reading, (a) because I think the topic is really well worked through by the various writers, but (b) it’s always good to see what the U.S. experience is and in particular, how the U.S. experience is being, they even deal with this, impacted on a more fragile U.S. economy and how that’s affecting this inherited wealth scenario.

Suzana Popovic-Montag:  Well I think, Ian that brings us to the end of this week’s discussion. Thanks for listening to me and for joining me today.

Ian Hull: So thank you Suzana, it’s a real pleasure and I look forward to podcasting with you again soon, and remind people that our call-in number, 206-350-6636, is always available for phone calls.

Suzana Popovic-Montag: Or again, feel free to send us an e-mail at hull.lawyers@gmail.com or visit our daily blog at estatelaw.hullandhull.com. Thanks very much.

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.

This week on Hull on Estates and Succession Planning, Ian and Suzana discuss the core issues surrounding estate taxes.

Posted on December 18^th, 2007 by Hull & Hull LLP

Suzana Popovic-Montag: Hi, and welcome to Hull on Estate and Succession Planning. You’re listening to Episode #91 of our podcast on Tuesday, December 18^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 today?

Ian Hull: I’m fantastic.

Suzana Popovic-Montag: That’s good. How’s your Christmas shopping coming along?

Ian Hull: Yeah.

Suzana Popovic-Montag: One week till Christmas. And the countdown begins.

Ian Hull: Yeah, good question and it hasn’t even begun the shopping, so the stores will hear from me. I remember one Christmas I shopped so fast that Visa called me because I had gone to 3 stores so quickly they thought that I was a thief and took my card. So that we have to look forward to.

But it’s a good time, I think, certainly this time of the year. And more importantly, we’ve been working through some of the estate planning questions. We got a little bit more complex as we moved along in this what we call “mini series” of tax planning the Wills and looking at the tax issues. And I thought today what we could do is just spend a few minutes really just doing a bit of an overview of what we’ve accomplished. I was struck by the fact that recently I was listening to Terry Fallis’ Inside PR and he and Dave Jones are great podcasters. We’ve talked about them in our podcasts from time to time and Episode #87 was one which they were talking about, and it sort of struck me about how we’ve been trying to approach this little mini series on tax planning. They were talking about what is social media and what sort of good does it bring to the process and what kind of…what are the positives and negatives. And clearly, the positive is hopefully an exchange of information that we want to foster and encourage. And certainly through this series, one of the things that I know you and I want to work on in ’08 to enhance this podcast is to get a little bit more exchange. We’re going to set up a 206 number or whatever, a call in number in the new year, encourage people to call in and make some comment if they think it’s appropriate. But, you know, when we were, you and I were working through these tax planning issues, we looked at sort of the three core areas that we find is the most feedback that we’re getting, from both our clients and from counsel and from the public so to speak, talking about avoiding estate planning tax, the Estate Act tax, which is a tax that everybody knows is the probate fee tax. That’s something that the feedback is consistent, although not on a 206 number, but in the informal discussion we have from day-to-day. Talking about how we deal with the capital gains tax. And then thirdly, how we manage US assets and sort of can start to consider the basic issues surrounding US estate taxes.

And so we hope that…Suzana and I certainly hope that we’ve managed to at least talk about these issues at a fairly sophisticated level in the sense that I hope we haven’t been too complex about the issues. But I think that we’ve tried to sort of cover these areas. And so I thought we’d spend a couple of minutes today just talking about, in general terms, those three concepts again and highlighting some of the core issues that we manage to work through over, I would say, I don’t know how many podcasts this mini series has been, but probably there’ve been 10 at least, I would think.

Suzana Popovic-Montag: That sounds about right, Ian.

Ian Hull: So remembering…I try to remember on the estate tax the first thing, being that let’s not…and I think that the core theme was with this tax planning series, was to refocus our attention to away from the soft issues and really spend some time on what are the tax issues. And clearly, avoiding the estate administration tax in Ontario tends to be a fundamental estate planning tool that people undertake. It’s 1.5% of the assets so, as we’ve continued to say, we don’t want to over exaggerate it.

Suzana Popovic-Montag: On our companion podcast last week, Ian, we know that David Smith and Allan Socken were speaking about probate and issues that arise in estate administrations. And one of the things that Dave said is that it’s just remarkable how often and how prevalent the fact that people are trying to avoid a 1.5% tax leads to a whole bunch of issues from a litigation perspective, that people wouldn’t otherwise have expected. It’s just really quite remarkable that when you really think about that number, it’s not as significant, I would suggest, as what other people might think. And the hoops and the lengths that people will go to, to avoid that, it just sometimes just doesn’t warrant it.

Ian Hull: Absolutely. Now remember we had some good discussions on how we manage the capital gains tax. And one of the ways that we talked about managing it was creating the trust environments, both testamentary trusts and inter vivos trusts, so trusts during the lifetime. So on estate administration tax, the simple answer to avoiding it in a large part is the primary and secondary Will, creating two Wills; one dealing with issues that will be taxed, and others dealing with assets that will not be taxes, typically corporations and the like.

Suzana Popovic-Montag: Another thing that we talked about was the use of beneficiary designations in either RRSPs or in life insurance policies and those kinds of instruments.

Ian Hull: So we don’t want to forget the two different trusts because that does help us defer the capital gain. And the capital gain, that terrible moment in time when finally Revenue Canada catches up to us and forces us to pay the tax that we owe. Now, again, just talking about what we wanted to accomplish on the trust analysis that we did was to emphasize that trusts that are created during lifetime create a different, entirely different tax structure too. And they don’t…you’re taxed at different rates as opposed to testamentary trusts. And so there is often an advantage to do the classic scenario where we have a husband and wife who are married. On the death of the first spouse, roll it over into a testamentary trust. It’s taxed at the lightest rate that can be taxed in Canada. That trust then stays alive, so to speak, during the surviving spouse’s lifetime. And then on his or her death, it finally falls into the next generation, the kids. And that’s a really simple but effective way of deferring the capital gains tax.

Another thing we talked about with the capital gains tax was how to offset it through uses of certain products, like you talk about when you can designate the RRSPs and so on, or a RIF or something to an individual who is going to receive a cottage, for example, say there’s a big tax hit. Another option we talked about was putting insurance instruments together even later in life, putting a joint last to die policy together where the two spouses buy a policy even late in life, where the last to die pays it out. And if you dovetail that into a spousal rollover or the spousal trust arrangement that we just talked about, you allow for easy transition into the next generation because you deferred the capital gains tax as far as you can and then on the death of the last spouse, a reasonable premium has been paid for the life insurance and then you have enough funds there, new funds essentially, to pay for this big capital gains tax.

The other area that we talked about finally was just dealing with and managing US assets. And the key issues there being that one that I always want to talk to my clients about is I make sure I want to double-check if they’re US citizens. And there was an interesting legislation that…I don’t know if it actually passed last week or not…but it was right up to the wire. In Canada, where if there was legislation that came about and it reminded me of these tax situations, it came about as a result of the fact this gentleman lived in rural Manitoba, was born actually in a US hospital. It was the closest hospital to where they lived in Manitoba. He was 40 years old now, so 40 years ago, his mother had to have, wanted to give birth somewhere and the closest hospital was a US hospital. He was born there and this gentleman, it’s a little off topic but it ties into the same sort of scenarios that we see in estate planning, and this gentleman ended up getting himself into some trouble with the law. And there was a threat that he was going to be deported or sent back to the US to face US time for his activity, his criminal activity or alleged criminal activity. And it was fascinating because the legislation in Canada now where they’re trying to fix that so that that little loophole won’t happen, that someone who really was almost a US citizen…he may or may not even remember that he was obviously a US citizen. And I use that illustration because we run into this a lot of the time with clients who will say, oh yeah, my Mom did live in the US when she was little. And then you find out, gee, you know, was she filing tax returns? Well yeah, because she got this small pension from this one thing and so she didn’t file or did file, depending on the circumstances, and it creates a whole new layer of estate planning problems. So our third part of this was dealing with, not just those kinds of creative situations, but dealing with that very prevalent situation where you’re either a US citizen or you have US assets and you live in Canada. How do you manage that from a tax planning standpoint? And I hope some of our talk about that was helpful as well.

So I think this was…today’s podcast was really to recap and I guess in some ways, we’re going to…we’re just putting together our next mini series right now. And in some ways, what we’re going to try to keep doing is encapsulating sort of core issues, talking about them over a series of podcasts to the extent that we can, so that we can make sure that we drill down on these issues beyond just sort of superficial comment.

Suzana Popovic-Montag: That’s great, Ian. Thank you very much for that summary. I think you really did sum up everything that we’ve talked about and I do look forward to our next mini series.

Ian Hull: So thanks again for listening to Hull on Estate and Succession Planning. It’s Ian Hull.

Suzana Popovic-Montag: And Suzana Popovic-Montag.

Ian Hull: 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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This week on Hull on Estates and Succession Planning, Ian and Suzana discuss the necessity of planning for the payment of taxes on death.

Payment of Taxes on Death - Hull on Estate and Succession Planning Podcast #89

Posted on December 4^th, 2007 by Hull & Hull LLP

Suzana Popovic-Montag:  Hi, and welcome to Hull on Estate and Succession Planning.  You’re listening to Episode #89 of our podcast on Tuesday, December 4^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 today?

Ian Hull:  I’m awesome, thanks.

Suzana Popovic-Montag:  That’s good.

Ian Hull:  Always looking forward to our podcasts once a week to sort of sit back and reflect on relatively new and exciting stuff in the estates law world, so looking forward to today’s podcast.  I spent a bit of time on the weekend and saw our friend, Terry Fallis, who has just launched his book.  It’s out in Indigo and it’s in some of the major bookstores and he was very excited.  We missed his book launch last week because of a mediation that went too long but Terry’s very excited about it and it’s been fun to catch up with him.

Suzana Popovic-Montag:  It’s a wonderful accomplishment.  And speaking of accomplishment s, Ian, I did want to mention the fact that I saw that article that featured you and your Dad in the Bay Street Bull Magazine talking about family businesses.  And I just thought it was a wonderful expose that did a lot of credit to the two of you and your accomplishments.

Ian Hull:  Well, thank you very much.  That was fun to do and it was fun photograph to take with my Dad, which…we got in our gowns and went down on the street and took a photo.  So it was pretty neat.

Suzana Popovic-Montag:  Well, that’s wonderful, congratulations on that.

Ian Hull:  Thank you.

So last week, we were working through and pretty well completed the whole sort of analysis of charitable tax issues and how that sort of unfolds at the level that we’ve been trying to sort of portray the basic tax issues from.  Today, let’s start turning the corner on payment of taxes on death, because that is sort of a first starting point.  Everybody thinks that that’s the worst thing that can happen to them after death.  So I guess dying is worse but paying the taxes is second worst, so...

Suzana Popovic-Montag:  But when you’re dead, you don’t have to pay those so…

Ian Hull:  That’s true.  So why don’t we talk about payment of the taxes on death.

Suzana Popovic-Montag:  Sure Ian.  We know that typically the Wills will provide the actual debt clause that will direct that the payment of taxes and of debts will be paid out of the residue of the estate.

Ian Hull:  Now, an interesting thing that can develop is because of the rule that taxes are paid out of residue, inequitable situations arise where you have one beneficiary receiving, for example, an RRSP or a specific bequest.

Suzana Popovic-Montag:  And I guess that’s because there is a tax that may be associated with either of those two bequests and in that kind of situation, normally, if there is a residue clause that provides that debts will be paid out of the residue, then the individual would be entitled to that RRSP or that specific bequest net of tax, so to speak.  So they wouldn’t have to bear the tax consequences, but it would be the estate that would.

Ian Hull:  And it’s sort of an interesting planning point that a lot of people forget, and that is, of course, that when you give an RRSP to someone specifically, the tax is payable out of the residue.  So this person gets the $100,000 RRSP tax-free unless you properly plan.  So it’s a fairly basic gifting technique that we see in Wills, so we don’t want to have it come back on us later, if we’re not watching where the tax is going to be paid.

Suzana Popovic-Montag:  Because if we don’t, the truth is, the residual beneficiaries are going to resent the fact that their funding someone else’s tax liability and that someone else is getting their gift free of the tax.  So it’s just something, as you say, important that we want to keep in mind.

Ian Hull:  So another…let’s talk about real property and real estate, when we’re gifting real estate.  How do we deal with that, and the tax questions that might arise there?

Suzana Popovic-Montag:  Where a residual beneficiary, Ian, desires to get real estate as part of his or her share of the estate, so instead of taking the cash equivalent of the value of the property, they actually want the real estate itself, in those situations the individual is going to be liable to pay the land transfer tax that’s going to be associated with that property.

Ian Hull:  So it seems to me, though, it is quite unusual to see the payment of land transfer tax addressed in the Will and this is a big tax now in Toronto here.  We’ve got an even bigger land transfer tax now added to our tax burden here and a great gnashing of teeth and crying about that here in Toronto.  But it is a bit unusual to see that actually being dealt within the Will, isn’t it?

Suzana Popovic-Montag:  It is, Ian.  I don’t think I can recall too many Wills where I’ve ever seen it, but it certainly is something that, you know, is a good idea to include in a clause that actually provides the executor with the ability to transfer real property as part of a residual share without having the land transfer tax liability associated with it.

Ian Hull:  Now, we’ve talked about the separate Wills and mutual Wills in other podcasts.  That’s obviously another factor to consider in terms of taxes and payment of taxes on death.

Suzana Popovic-Montag:  That’s for sure because we know that we’ve seen many situations where there are separate Wills set up, for instance, for the private company’s shares and for other assets that don’t necessarily require probate, and then a separate Will dealing with those assets that will require probate.

Ian Hull:  And one of the things that we’re starting to see, because these primary and secondary Wills are starting to fall in more and more, is that sometimes when we’re estate planning, we’re not considering when we have a primary and a secondary Will, like you say, where the tax is to be paid.  And we’re not putting in the Wills precisely, for example, if the holding is in the secondary Will, do all the taxes in respect of the holding company get paid under the secondary Will or does the primary Will fund the tax liability that may be the subject to the holding company, those kinds of things.  So it’s a good point to press our advisors when we’re setting up our estate plan to just make sure that we might say to them look, okay this is all very fancy-dancy, two Wills.  I like the approach, but who’s going to pay the tax and where and does it set out in the Will clearly where the liability of tax will flow, because it can be a big issue.

Suzana Popovic-Montag:  Particularly, Ian, when the residual beneficiaries under the primary Will or the secondary Will are different.  Because in those situations, you know, despite all the planning, I’m actually quite surprised that, you know, secondary and primary Wills are quite sophisticated estate planning.  And notwithstanding that, as you say, we don’t many times see a clear delineation between the two Wills as to who’s responsible for those kinds of debts and taxes.

Ian Hull:  Alright.  So we’ve considered the RRSP unique situation.  We’ve considered the land transfer tax unique situation.  What about properties with accrued capital gains which get bequeathed to an individual beneficiary?  Like, for example, a cottage or something that’s, say you bought when…thirty years ago and then on the death, it’s a significant capital gain that is owed on the cottage, or something like that?

Suzana Popovic-Montag:  That’s an interesting scenario and one that quite often does arise.  And one of the things that I know you always recommend is considering whether the tax should actually be funded by a mortgage on the property or directly out of the residue of the estate.

Ian Hull:  It’s just something to consider if the residuary beneficiaries are looking to make sure that flows through without too much tax burden.

Alright, now if the residuary beneficiaries are different under a primary and a secondary Will, that’s another situation as well where it becomes very important to make sure you set out who’s going to pay what tax and on what basis in this whole primary Will and secondary Will equation.  Sometimes, for example, the operating company is going on to the daughter because she’s been in the business all these years.  But…and that goes in the secondary Will, no probate fees, all is well.  But in the primary Will, the main assets, the conventional investment account and maybe the house or something are going to the son to equalize.  In that kind of scenario, again we want to make sure that when we have secondary and primary Wills with different beneficiaries, obviously different assets as well, we really want to make sure we’ve addressed what tax liability is to be paid and where.

Suzana Popovic-Montag:  And Ian, what would you say would be the result in those situations where there is no clear distinction between which estate, so to speak, is liable for those taxes.  What would we do in those circumstances?

Ian Hull:  Well, I think the tragic part of this, and if we don’t start addressing these in our Wills carefully is, is that you’re going to end up in Court because the law is very mixed in terms of where the tax will fall because, quite frankly, it is new law in every respect.  So you’re not…you’re going to be looking to the Will and you’re going to be looking to case law that really is very light on how this is to be…this competing battle is to be figured out.  There’s some great stuff written, Clare Sullivan wrote a great article about a year and a half ago on where liability of tax lies and where it’s paid in primary and secondary Wills, and you know, her conclusion was, is that the Courts are going to be stepping in and really having to grapple with this, if it becomes a big issue and it becomes a big number.  Now, that’s obviously in situations where you’ve got significant tax liability and the amounts have to make sense before you’re going to get into those battles.  But, boy, that would be a shame to have to go to Court if the Will isn’t clear, to get some direction on what is a very important issue, and that is, who pays the tax and where from.

Suzana Popovic-Montag:  Well, that’s a good point, and I’m sure a very expensive proceeding as well.  So to the extent that we can try to predict and deal with that in advance, I think that can only help us in our estate planning.

Ian Hull:  Okay.  Well I think that touches on some of the core tax issues and payment on death.  What we thought we might do in our next podcast is, because of the fact that in Canada anyway certainly, there are lots of foreign real estate issues, situations where someone might have a condominium in Florida or something like that.  What are some estate planning issues to consider and what are some tax issues to consider in the context of those assets.  So I think we’ll try to turn to that at our next podcast.

Suzana Popovic-Montag:  I look forward to that discussion.  Thanks very much, 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.

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