Hull on Estates and Succession Planning #206 – Examining Litigation in Ontario
Listen to: Examining Legislation in Ontario
This week on Hull on Estates and Succession Planning, Ian and Suzana talk about what a lawsuit or litigation would be like if those involved resided outside of Ontario. Issues discussed include knowing what to expect, what the system is about and how it works.
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Ian M. Hull – Click here for more information on Ian Hull.
Suzana Popovic-Montag – Click here for more information on Suzana Popovic-Montag.
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Welcome to Hull on Estate and Succession Planning, a series of podcasts hosted by Ian Hull and Suzana Popovic-Montag. The podcast you’re listening to will provide information and insights into estate planning in Canada. From the offices of Hull & Hull in Toronto, here are Ian and Suzana.
Suzana Popovic-Montag: Hi and welcome to Hull on Estate and Succession Planning. You’re listening and some of you may be watching episode 206 of our podcast.
Ian Hull: Hi Suzana.
Suzana Popovic-Montag: Hi there Ian, how are you?
Ian Hull: Great. Excited. This is our first podcast since the World Cup.
Suzana Popovic-Montag: Yes, that’s right.
Ian Hull: So in honour of the international component of the World Cup, we’re gonna talk about international issues.
Suzana Popovic-Montag: Well and I thought we decided bringing the winner of the cup on.
Ian Hull: Oh, that’s true. We should be celebrating Spain. That was a great win. I watched it from a bar in Baysville, Ontario.
Suzana Popovic-Montag: That’s great.
Ian Hull: So I wasn’t exactly in Madrid at the time when it happened but must be exciting to be there. We’re really excited about today’s podcast because as I say we wanted to try to bring in this international flavor that the world has been experiencing with the World Cup and talk about what is it like if you are looking into Ontario? So if you’re someone…and the joy of the Internet is that some non-Ontario people might be listening and watching our podcast…if you’re involved with a lawsuit or litigation related to an estate and you don’t live in Ontario. So you don’t really know what to expect, what the system is about and how it works. So we thought what we would do is look at some of the issues that would be of consequence or of importance to someone who would be from outside coming into our system in estate litigation. And we wanted to start with first this concept that Chris Daven, a great lawyer down in the Niagara Region taught me and a neat idea is that this idea that remembering he does a variety of litigation. He said, remember Ian, when you get into estate litigation, the fundamental difference between estate litigation and all other litigation wherever you are in the world is that you have chosen to sue blood, right? I mean you can sue your wife, you can sue your…well you can choose to have a marriage breakdown might be contentious and so on…but in this case, we have chosen to sue blood. So that’s the environment that we all live and breathe in every day. But let’s add another layer to that, and let’s have someone looking to our world of litigation. And what are some of the issues that I would want to know about that exist in the estate litigation field. So obviously what is of most importance is the client understands the threshold that you’re gonna meet, and that is, this could be aggressive and emotional litigation. But one of the first questions I always ask my client who may be in Germany who is involved with an estate in Ontario, well what are their personal circumstances. What are they…where are they at before they get involved in what can be heavy duty litigation?
Suzana Popovic-Montag: And the truth is, Ian, we have more and more of these kinds of clients these days. Thank goodness to technology being as it is. And our own Law Society here in Canada and particularly in Ontario has imposed obligations on us as practitioners right from the get go in terms of these retainers. And they start with the requirement that we actually have to identify and verify the identity of our clients. And so before we even get into exploring what it is that they want to do, we are already working up some energy being expended on finding out exactly who they are and verifying who they say they are so that, you know, at the end of the day, we’ve got the protection in knowing that we’re acting for who they say they are. And they have the protection of knowing that they’ve got reputable counsel that’s representing them in their matter.
Ian Hull: Well that’s a really good point. An important starting point that a lot of clients who are from outside of Ontario don’t understand that we have these strict rules.
Suzana Popovic-Montag: Right, right.
Ian Hull: Alright. Well then let’s talk about some of the legal issues. And one of the ones that generates a tremendous amount of estate litigation, and the purpose of this miniseries is not to rehash too much of the detail of these legal issues, but just identify them. The purpose…one of the big issues, of course, is what about probate taxes? And how does that affect…we have a special tax in Ontario. First, what is it? And then how does that affect litigation?
Suzana Popovic-Montag: Well certainly I think if we step back, it causes a lot of litigation. We sort of see the end result of people who are being very creative in their estate planning trying to avoid what, at the end of the day, really turns out to be a minimal tax when you compare it to the fees that are incurred in either trying to avoid it or thereafter disputing it and trying to deal with the litigation that comes about as a result of that.
Ian Hull: Okay, but…so it’s bad, that part of it. But first of all, what is the probate tax? What are talking about? If I’m in Germany and someone is saying, what’s a probate tax? Or I’m in Spain hopefully ‘cause they’re gonna be watching this, no doubt.
Suzana Popovic-Montag: Well obviously when you’ve got an estate here in Ontario, the government will tax an estate trustee, the estate, when someone dies and you’re applying for probate. So if you’re applying to the Court to get authority to administer an estate as the named estate trustee, whether in a Will or on an intestacy, there’s a requirement to pay a probate tax, an estate administration tax we call it here, that’s a graduated tax that is a cheque that basically the estate trustee has to submit with their application in order to get the Court approval of their appointment.
Ian Hull: And it is truly a death tax.
Suzana Popovic-Montag: Yes.
Ian Hull: In the US, they have death tax…all over the world they have different varieties of death taxes. But in Ontario we have, you know, they can call it what they want. The government can call it what it wants, but it’s a death tax.
Suzana Popovic-Montag: That’s right.
Ian Hull: And as you said earlier, it’s a modest tax and people tend to overreact to it, but it’s still a tax. And if you plan well, you can avoid it but you can also create new problems.
Suzana Popovic-Montag: That’s right.
Ian Hull: So, let’s talk a little bit…first of all, it’s a modest tax in the sense that it’s a graduated tax but roughly about 1.25% of the assets are taxed.
Suzana Popovic-Montag: And that’s the key, the assets of the estate. And so you’re looking at personal property that’s owned here in Ontario by the deceased and real property. And the only liability interestingly enough that you can deduct from the value of the estate is any mortgage on real property. And so that’s something we keep in mind but even though the estate may have a whole bunch of liability, you’re still gonna pay tax on basically the gross value less any mortgages on real property.
Ian Hull: Absolutely. And so once we realize it’s a tax, so we’re gonna take our steps to try to avoid it, the litigation that can tend to ensue from it ties into this planning that is done maybe a little too quickly and little haphazardly. And the classic is the joint account scenario.
Suzana Popovic-Montag: That’s right. Well any claims for a constructive trust or resulting trust can also arise from these kinds of situations and so it’s clearly not a Will challenge that’s gonna arise out of the estate administration tax, but different kinds of litigation that still can be quite contentious and involve people from the outside.
Ian Hull: So just to wrap up this point then on the probate tax types of litigation, the joint account…what exactly…what are the mechanics? Why does that…how does that give rise to litigation?
Suzana Popovic-Montag: Well here in Ontario, if you have someone on title with you jointly there’s the concept of right of survivorship. And so even though two people can be on title jointly with right of survivorship, on the death of one of those individuals, the other would take the whole property by right of survivorship. And so the question becomes, you know, was that in fact what was intended? Was it intended to give a gift of the whole value of the particular asset on death? Or was it really just sort of a trust arrangement where that individual was on for maybe convenience purposes and holding that property in trust at the end of the day for the estate?
Ian Hull: And, of course, if it lands in the estate, it’s taxable. If it doesn’t, it isn’t.
Suzana Popovic-Montag: That’s right.
Ian Hull: Alright. So that’s just one other perspective. And I think we’re gonna wind up on that point and come back in our next podcast with some other twists and turns of a litigant. A foreign litigant looking to Ontario, what can they expect? So thanks so much Suzana.
Suzana Popovic-Montag: Thank you.
Ian Hull: And again, congratulations to Spain.
Suzana Popovic-Montag: Thank you very much Ian. And I look forward to our next podcast.
You have been listening to Hull on Estate and Succession Planning by Ian
Hull and Suzana Popovic-Montag. The podcast that you have been listening
to has been provided as an information service. It is a summary of current
issues in estates and estate planning. It is not legal advice and you are reminded to always speak with a legal professional regarding your specific circumstance.
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