Author: Ian Hull
The Earl of Spencer (the late Princess Diana’s brother) recently sparked controversy when he announced his intention to leave his 90-room stately home, Althorp, to his son, Louis. Louis is the Earl’s only son, however, he is the youngest and but one of the Earl’s four children.
In leaving Althorp to his only male heir, the Earl of Spencer is keeping with the British tradition of primogeniture, being the practice of leaving one’s real property to the eldest male heir.
Historically, the principle of primogeniture was introduced to prevent the subdivision of large family estates and to reduce the sale of properties, for example, where two children inherited the family home but one child was unable to financially buy out the other child’s share. This ensured that large estates remained intact and within the family. Recently, however, the subject has become quite a controversial issue in Great Britain.¸More and more, aristocratic women are protesting the principle’s application, arguing that they are no less capable of managing the family’s fortune than their younger brothers.
Indeed, the royal succession rules were recently changed by the Succession to the Crown Act, 2013, which was passed by the Parliament of the United Kingdom. This act replaced male preference primogeniture with absolutely primogeniture for those born in the line of succession after 28 October 2011. This means that the eldest child, regardless of gender, will now precede his or her siblings to inherit the crown.
However, the principle of primogeniture still carries weight in relation to real property in the United Kingdom. As such, given the Earl’s announcement, it would appear that Louis’ older sisters, Lady Kitty, Lady Eliza and Lady Amelia, will miss out on inheriting the family estate.
In Canada, the principle of primogeniture was abolished by the 1852 Act of 14-15 Victoria, c. 6; (C.S.U.C., c. 82) commonly known as the Act Abolishing Primogeniture (the “Act”). Initially there was some confusion as to whether that Act applied only to determine who the heirs were upon an intestacy or whether it applied also to determine who the heirs were in the case of a testamentary devise to “heirs” (see Tylee v. Deal (1873), 19 Gr. 601). It was concluded, however, that the principle of primogeniture was abolished with respect to testamentary devises as well. As such, in Canada, “heirs” when used by a testator in his or her Will no longer refers only to the eldest son but to his brothers and sisters as well (see Baldwin v. Kingstone (1890), 18 O.A.R. 63).
Accordingly, no matter where the testator lived prior to death, if he or she leaves behind any real property (land and buildings) located in Ontario, that property will be subject to Canadian law and, in Ontario, the provisions of the Succession Law Reform Act. As it stands, this legislation does not expressly support the preference of one’s male heir over his or her female heirs.
While a testator does have testamentary freedom to leave property to a male heir by the terms of his or her Will, the Court does have discretion to alter the terms a Will where it does not make adequate provision for the testator’s spouse and/or dependants.
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I recently came across an article titled TFSA Designations May Cause Estate Planning Problems written by Amin Mawani and published by Advisor.ca. The article highlights some important estate planning considerations for TFSA account holders.
In its April 2015 Budget, the Federal Government proposed raising the annual TFSA contribution limit from $5,500.00 to $10,000.00, and raising the cumulative TFSA contribution limit to $41,000.00. For many, these accounts have already become a substantial personal asset. This increased contribution room only increases the likelihood that these accounts will continue to grow into substantial estate assets for those who have and continue to contribute to them.
Without proper planning (i.e. without making the proper designations), one’s TFSA will revert to his or her estate on death, resulting in the unfortunate consequence of the account losing its tax-sheltered status, and rendering the funds subject to Ontario’s hefty probate fees.
Mawani’s article assists account holders by highlighting the various designation options available and by distinguishing between a designated successor-holder and a designated beneficiary. Mawani explains that an account holder may designate his or her spouse or common-law partner as a successor-holder and anyone else as a beneficiary. A successor-holder will trump a beneficiary if both are alive at the time of the original account holder’s death, and a beneficiary will trump the deceased’s estate if no successor-holder was nominated or if the successor-holder predeceases the account holder. If neither a successor-holder or a beneficiary are designated or alive at the account holder’s time of death, the account proceeds will then revert to the deceased’s estate.
Mawani goes on to explain the benefits of making such designations, including the fact that if such designations are made the account holder’s TFSA will not de-registered on death. The assets will remain continuously sheltered, and the successor-holder may make tax-free withdrawals after taking over ownership. In addition, he explains that the successor-holder can continue to have her or her own TFSA, with lifetime and annual contribution limits unaffected, or alternatively may choose to consolidate the deceased’s account into his or her own.
Finally, Mawani helpfully provides links to the designation forms for various Canadian institutions including BMO, Investors, RBC, Scotia and TD. The article is worth a read for anyone who currently contributing or planning to contribute to a TFSA.
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A recent article published in the Financial Post titled, ‘Successful businesses need more than just one plan to survive’, highlights several estate planning considerations for business owners.
All businesses require a thoughtfully considered estate plan, however, sole practitioner businesses and family-owned businesses present several unique estate planning issues for consideration.
In many cases, these businesses are the primary if, not only, source of income for the business owners and their families. If the business owner dies without a proper plan, his/her family could be left without direction and a with hefty tax bill.
Having an estate plan can help to minimize any potential tax liability and ensure a smooth transition in the event of the death or incapacity of the business owner.
A few documents that are essential for such an estate plan include Primary and Secondary Wills and a Power of Attorney for Property.
Primary and Secondary Wills
The use of multiple Wills is an effective estate planning strategy for reducing the amount of Estate Administration Tax that would otherwise be payable. The shares of a privately held company can be included in the Secondary Will, and therefore, will be unlikely to require probate. Further tax minimizing strategies, such as capital gains exemptions, rollovers and trusts can also be incorporated into the Primary and Secondary Wills.
In addition, through these Wills, the business owner can outline who the business will go to and how any transition in relation to the succession or sale should take place.
Power of Attorney for Property
If one individual effectively runs the business, their incapacity could be debilitating for the company. Executing a Power of Attorney will allow the business owner to choose an individual that can step into his/her shoes and make business decisions in the event he/she is incapacitated.
A useful estate planning checklist that highlights various other aspects of estate planning for business owners can be found here.
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‘Hot tubbing’– or ‘concurrent evidence’ as it is more formally known, is a means of eliciting expert evidence at trial, whereby the expert witnesses give their evidence in chief together and by engaging in discussion directly with the trial judge and each other. This approach is significantly different from the traditional model of cross-examination, in which each expert is individually examined and then cross-examined by opposing counsel.
Australia was the first to introduce the practice into civil trials, however, hot-tubbing has since been successfully adopted in the UK and has become widely used in International Arbitration.
While there are no hard and fast rules for hot-tubbing, the general procedure is somewhat consistent across jurisdictions:
Prior to trial, the experts are required to prepare and exchange written reports. They will then meet, usually in the absence of counsel, to discuss their reports and prepare a joint statement. The purpose of the joint statement is to identify the specific points upon which the experts agree and disagree. The identified areas of disagreement are then used as the basis of an agenda for the ‘hot-tub’, which is prepared and agreed by the parties. This agenda is provided to the judge in advance of the trial. At trial the experts are sworn in together. The judge initiates and directs the discussion based on the agenda. Through their oral testimony, the experts will try to reconcile the areas of disagreement. Each of the experts is provided the opportunity to present their views and answer any questions posed by the other expert. If necessary, counsel is then permitted to ask questions of each of the experts. At the end, the judge will summarize the different positions put forth by each of the experts on the issues and get them to confirm or correct if the judge’s interpretation is incorrect.
By focusing only on areas of contention, particularly during cross-examination, there seems to be a significant reduction in the amount of time required to examine each expert. Overall, this can lead to time and cost savings and increase the overall efficiency of eliciting expert evidence at trial.
In Canada, the Federal Court Rules (the “FCR”) governing expert evidence were updated in 2010 to incorporate hot-tubbing. Paragraph 282.1 of the FCR now reads:
“The Court may require that some or all of the expert witnesses testify as a panel after the completion of the testimony of the non-expert witnesses of each party or at any other time that the Court may determine…
Expert witnesses shall give their views and may be directed to comment on the views of other panel members and to make concluding statements. With leave of the Court, they may pose questions to other panel members.”
In addition, a pretrial version of hot-tubbing was added to the Ontario Rules of Civil Procedure (the “Rules”) in 2010, and appears to be gaining traction. Pursuant to Rule 20.05(2)(k) of the Rules, the court may give direction or stipulate that experts meet on a without-prejudice basis before trial where:
“(i) there is a reasonable prospect for agreement on some or all of the issues, or
(ii) the rationale for opposing expert opinions is unknown and clarification on areas of disagreement would assist the parties or the court.”
This practice of hot-tubbing, both before trial and at trial, is becoming more widely used in an effort to reduce areas of disagreement between experts and to increase efficiency of facilitating settlements and assisting the court at trial.
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The value of insurance should not be overlooked in estate planning. Here are just a few reasons why having insurance can be an important part of your overall estate plan:
(1) Insurance can preserve your existing estate
Pursuant to the deemed disposition rules contained within the Income Tax Act (Canada), all capital property owned at death is treated (for income tax purposes) as having been sold by the deceased immediately prior to his/her death. These provisions will apply to, among other assets, the deceased’s business, investments, vacation/holiday home, as well as the deceased’s art and other collectables. As such, it is not uncommon for significant capital gains tax to be due and payable upon the filing of a deceased’s terminal tax return. If not properly planned for, these taxes can significantly reduce the funds that would otherwise be available for the intended beneficiaries.
Insurance can be used to offset these taxes and any other costs that are incurred by the estate in relation to the individual’s passing (i.e. funeral costs and probate fees). If you name your estate as the beneficiary of your insurance policy, your estate trustee can use the proceeds to cover these expenses, which would otherwise have to be paid out of the estate assets. This will make it less likely that non-liquid assets, such as a cottage or business, will have to be sold to cover a tax bill. However, provision should be made for an insurance trust within the Will to ensure the policy proceeds do not attract probate tax.
(2) Insurance can create an estate for your beneficiaries
Insurance can also be used to create an asset or establish a fund to provide income for an individual you wish to support. While other investments like fixed income securities, GICs and bonds are considered a safe means of accomplishing the same goal, the income earned on those investments during the testator’s life is highly taxed. Since the proceeds of a life insurance policy are paid tax-free to the beneficiary or beneficiaries, life insurance can be an efficient way to create an estate and to transfer wealth to heirs.
In addition, if your beneficiary uses the death benefit to buy an annuity for monthly income, he/she may not have to pay tax on that monthly income.
(3) Insurance can provide a confidential benefit to anyone
If the Will of the deceased requires probate, it becomes a public document. This can make dispositions more susceptible to challenge. Using a life insurance policy, it is possible to make a private and confidential gift, and this privacy may make the gift less susceptible to challenge.
There are, however, a few caveats to using insurance in an estate plan:
(1) The insured must be able to bear the cost of the policy and afford to do so without financial compromise. The earlier one starts investing in a policy the more affordable this option becomes.
(2) In order to secure an affordable policy one must be in good heath.
(3) If the policy proceeds are intended to benefit a minor beneficiary, the insurance company will likely seek to pay the proceeds into court in order to secure a discharge. An insurance trust should be set up to anticipate and avoid the likelihood of a payment into court.
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Recently at the Practice Gems: Probate Essentials 2014 program held by the Law Society, Jordan Atin of Hull & Hull LLP and Michael Press of the Toronto Police Service presented a paper on firearms as estate assets. In their presentation, Mr. Atin and Mr. Press outlined the unique challenges faced by Estate Trustees when firearms are amongst the Deceased’s assets.
Firearm regulations in Canada, namely the Firearms Act and Criminal Code, generally require that anyone in possession of, or intending to acquire a firearm, hold a licence permitting that individual’s possession or acquisition.
Specifically, section 91(1) of the Criminal Code states that “…every person who possesses a firearm without being the holder of (a) a licence… (b) in the case of a prohibited firearm or a restricted firearm, a registration certificate for it…” commits an offence.
Therefore, an estate trustee, who automatically assumes possession of the deceased’s assets upon the death of a testator, may suddenly find him/herself in possession of firearms without the requisite licence and/or required registration certificate, and without a basic understanding of how the Canadian firearm regulations apply to them.
Thankfully, a special exemption exists under, section 91(4)(b) of the Criminal Code, that in most cases will allow an estate trustee to possess or otherwise deal with the deceased’s firearm(s) without a licence for the purpose of administering the estate.
Specifically, section 91(4)(b) states that section 91(1) will not apply to “ … (b) a person who comes into possession of a firearm, a prohibited weapon, a restricted weapon, a prohibited device or any prohibited ammunition by operation of law and who, within a reasonable period after acquiring possession of it, (i) lawfully disposes of it …”.
The phrase, “by operation of law”, generally includes the automatic transfer of legal possession from the deceased to the appointed executor, at the moment of death. In effect, section 91(4)(b) grants the estate trustee the same rights the deceased had to possess firearms, so that the estate trustee may settle the estate in an orderly manner, and with minimum delay.
However, there are exceptions to the application of this provision, for example, where the deceased did not possess a valid license or registration certificate at the time of death, or where the appointed estate trustee is under a court-ordered prohibition from possessing firearms.
The RCMP has published a helpful fact sheet to assist those trying to understand the regulations and their obligations as estate trustees. However, in order to ensure compliance, it is recommended that an estate trustee who finds firearms among the deceased’s estate assets, fill out an Authorization Form 6016 – ‘Declaration of Authority to Act on Behalf of an Estate’ and submit it to the RCMP Canadian Firearms Program (the “CFP”) to receive further information and guidance. The CFP can also be contacted by phone at 1-800-731-4000.
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Within the recent past, the success rates and popularity of conceiving a child through Assisted Reproductive Technologies (“ART”) have increased significantly. Technological advances now make it possible for genetic materials to be frozen and preserved for decades, before being thawed for use in the conception of children.
Both Apple and Facebook have recently announced that they will cover the cryopreservation of unfertilized eggs for female employees as part of their benefits plans. These announcements raise novel estate planning considerations for the female employees who will be freezing and preserving their eggs.
Today’s technology allows the frozen eggs to survive the individuals from whom they were obtained. Accordingly, the wills and trusts of the female employees seeking to utilize this option may need to be updated to anticipate and address issues arising from the potential use of the frozen eggs after their death.
First, the individual’s will or trust should be updated to specify whether the frozen eggs are to be destroyed, used by a spouse, partner or parent, or donated. If they are to be used by a spouse, partner or parent, the female employee may also need to consider to what extent a child subsequently conceived through the use of her preserved egg(s) after her death are to receive a share of her estate. If not properly considered the child subsequently conceived could be inadvertently disinherited by the terms of an existing will.
In addition, it might be necessary to consider potential impacts this later use of the preserved eggs could have on the administration of her estate. The mere existence of the frozen eggs has the potential to create significant delays to the administration if a portion of her estate must be set aside for this later conceived beneficiary. In some US States they have legislated notice periods, within which the spouse who intends to use preserved genetic materials must communicate their intention in order to prevent such delays to the estate administration.
In British Columbia, the Wills, Estates & Succession Act sets out that a posthumously conceived child can inherit as if he or she had been born in the lifetime of the deceased person if the surviving spouse or person in a marriage-like relationship with the deceased at the time of death gives notice to the personal representative, beneficiaries, and intestate heirs that the person may want to use reproductive material of the deceased to conceive. The child must be born within 2 years from the death (or longer, if extended by the court) and survive for at least five days. The deceased parent must also have given consent in writing to the use of his or her reproductive material after death. Ontario’s Succession Law Reform Act does not address this issue. The federal Assisted Human Reproduction Act also provides that no person can use reproductive material or remove it from the donor’s body after death unless the donor has given written consent.
These are some of the many estate planning considerations individuals should be mindful of when seeking to use this technology. It should be noted that the legal issues created by the use of ART are arising with increasing frequency, we’ve previously blogged on related issues here and here. As the technology and its use is still relatively new, the law in this area is still developing. It will be interesting to see how the law develops over the coming years with the increasing use, no doubt encouraged by the benefits inclusion recently incorporated by Facebook and Apple.
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Reminder: Simplified Procedures for Small Estates Focus Group – November 4, 2014
The LCO in conjunction with Hull & Hull LLP have arranged a focus group for November 4, 2014 from 2:30 PM until 4:30 PM, at Hull & Hull LLP, 141 Adelaide Street West, Suite 1700, in Toronto (and not from 1:00 – 4:00 as previously advertised). Our recent blogs which outline the proposed simplified procedures can be viewed here and here. Call in access is available, and anyone interested in participating can contact Amanda Rodrigues at email@example.com. We encourage you all to participate!
Guelph’s MP, and former Estate lawyer, Frank Valeriote, recently tabled Bill C-247, the Service Canada Mandate Expansion Act (the “Bill”). If enacted the Bill would require the Minister of Employment and Social Development to establish Service Canada as the single point of contact for the Government of Canada in respect of all matters relating to the death of a Canadian citizen or Canadian resident.
Under our current system, estate trustees are often required to contact a multitude of government departments upon the death of an individual. These departments can include (to name a few):
- Service Ontario for Old Age Security and CPP Benefits, Employment Insurance and in relation to the Deceased’s Social Insurance Number Card;
- The Canadian Revenue Agency in relation to the completing of the Deceased’s final tax returns;
- Passport Canada if the Deceased had a valid passport at the time of death; and
- The RCMP if the Deceased had firearms.
There is little if any communication between the various government departments and each generally has unique documentation and procedural requirements that must be deciphered and complied with by the estate trustee.
Valeriote indicates that “the creation of ‘one point of contact’ at Service Canada would bring efficiency to the system and would remove the guess work for survivors and estate administrators who may not be fully aware of the deceased’s obligations to the federal government.”
He goes on to state that the Bill “will reduce the possibilities of benefit overpayments and costs to the federal government to retrieve such expenditures… and avoid the possibility of requests arriving years later from the federal government demanding repayments or penalties”.
Under the proposed Bill, an estate trustee need only advise Service Canada of the death once. This one contact would trigger a notification to all relevant departments, who would then be required to advise the deceased’s estate trustee of the specific procedures and responsibilities applicable in relation to the cancellation of benefits, the return of identification documents and access to any survivor benefits.
A similar system has been successfully implemented in the United Kingdom called “Tell Us Once.” The process in the UK allows an estate representative to report a death to most government organizations with just one communication.
The Bill comes on the heels of the 2013 Fall Auditor General’s Report titled “Access to Online Services”. In Chapter 2 of this report, under ‘delivery of services to Canadians’ the Auditor General examined the current practices and procedures relating to death notifications and highlighted the lack of coordination and communication between the various departments.
Valeriote says “the current system is far too cumbersome for those who have lost their loved ones. Should the Bill be passed people will finally find some comfort in knowing they won’t be facing an endless labyrinth of frustration in wrapping up the affairs of their loved ones which sometimes leads to higher legal bills.”
The Bill passed its second reading in the House of Commons Oct. 8, 2014, and was referred to the Standing Committee on Human Resources, Skills and Social Development and the Status of Persons with Disabilities for further study.
If the Bill becomes law, the Minister of Employment and Social Development will have one year to establish Service Canada as our single point of contact.
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