Author: Nick Esterbauer
Our blog has previously covered the issue of inheritance tax.
As a reminder, inheritance tax is charged on estates of a certain value or greater on a percentage basis. Smaller estates (different amounts depending on the jurisdiction) may be exempt, with the applicable tax charged on the portion of the estate exceeding the exemption limit. Inheritance tax does not apply to Canadian estates or their beneficiaries. While we see individuals go to great lengths to avoid the payment of Estate Administration Taxes payable on assets administered under a probated will in Ontario and other provinces, the rate (at approximately 1.5% in Ontario) is significantly lower than what we see in jurisdictions where estates are subject to inheritance tax (up to 55% in Japan).
In particular, we have covered a number of developments in U.S. inheritance tax, which saw some fluctuations during Donald Trump’s presidency. Trump had proposed the elimination of inheritance taxes all together. More recently, President Joe Biden’s government has been considering a number of measures to increase the taxation of large estates: the reduction of the estate tax exemption to $3.5 million (from $11.7 million), increasing inheritance tax rates from 40% to 65%, and/or increasing taxes on capital gains in respect of inherited assets. News reports suggest that there has been resistance to the proposed increased tax burden to estates as the proposed increased capital gains tax makes its way through congress. However, the measures proposed by President Biden could generate an additional $213 billion to $400 billion over the next ten years.
Having just seen another federal election in Canada, it is interesting to follow along with how inheritance tax has been used as an important part of political agendas in other jurisdictions. It will be interesting to see if inheritance tax or other taxes applied to estates become part of political platforms locally in coming years, as we continue to approach the greatest ever transition of wealth from one generation to the next.
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Other blog entries that may be of interest:
Estate lawyers are well aware that, in the event that a person dies without a will, is not survived by a spouse, children, or parents, the next in line to inherit are the deceased’s siblings. Furthermore, where one or more of the person’s siblings have predeceased them, the children of those predeceasing siblings are entitled to a share of the deceased’s assets on intestacy. However, what happens in a scenario where a person is survived by one or more siblings, but predeceased by other siblings and their children, who themselves have left children (great nieces or nephews of the deceased)?
Subsection 47(4) of the Succession Law Reform Act reads:
“Where a person dies intestate in respect of property and there is no surviving spouse, issue or parent, the property shall be distributed among the surviving brothers and sisters of the intestate equally, and if any brother or sister predeceases the intestate, the share of the deceased brother or sister shall be distributed among his or her children equally.”
Subsection 47(5) further stipulates:
“Where a person dies intestate in respect of property and there is no surviving spouse, issue, parent, brother or sister, the property shall be distributed among the nephews and nieces of the intestate equally without representation.”
The issue in considering the effect of these provisions is that it may be somewhat unclear whether the reference in 47(5) to “without representation” applies in situations where the intestate is survived by siblings, as the statement that the person is not survived by any brother or sister is not accurate. “Without representation” in such instances implies that the issue of a person, in this case a niece or nephew, will not benefit in circumstances where they predecease the deceased. While subsection 47(4) does not include the wording “without representation”, it does make specific reference to “children” rather than “issue” (like we see in other subsections relating to the rights of predeceasing children of the intestate).
A 1995 decision of the Ontario Court of Justice provides guidance on this specific scenario. In Kiehn v Murdoch, 9 ETR (2d) 76, Justice Flinn considered the meaning and purpose of subsection 47(4) of the Succession Law Reform Act on an application for the opinion, advice, and direction of the court, finding as follows (at paras 9-10):
“In these circumstances, subs. (4) appears to be very clear when applied to the estate…[The intestate] did not leave surviving any spouse, issue or parent. Therefore, his property should be distributed among the surviving brothers and sisters equally, with the further provision that if any brother or sister predeceases the intestate, the share of that deceased brother or sister should go to the children of the deceased brother or sister…[T]he court finds that the children of the deceased children of the deceased brothers and sisters of [the intestate], that is his grandnephews and grandnieces, are excluded by the operation of s. 47(4).”
Because Justice Flinn found the wording of subsection 47(4) to be clear, other subsections of the Succession Law Reform Act did not need to be considered in determining the limitations of rights of great nieces and nephews in such circumstances.
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A recent decision of the Ontario Superior Court of Justice revisits the issue of whether a presumption of resulting trust should be imposed in the case of a beneficiary designation.
As our readers will know, the leading case on presumptions of resulting trust remains Pecore v Pecore, 2007 SCC 17, in which the Supreme Court summarized the state of the law relating to property that had been gratuitously transferred into joint tenancy with a non-dependent adult child: the asset becomes subject to a presumption that it is impressed with a resulting trust in favour of the parent’s estate. The presumption may be rebutted by evidence that it was, in fact, the parent’s intention to gift the jointly-held property to the adult child by right of survivorship.
Last year, we saw a couple of decisions apply the principles of Pecore to novel situations, potentially expanding the applicability of presumptions of resulting trust. For example, in Calmusky v Calmusky, 2020 ONSC 1506, the doctrine of resulting trust was applied to a RIF for which an adult child had been designated as beneficiary.
In Mak Estate v Mak, 2021 ONSC 4415, Justice McKelvey reviewed the issue of whether an asset for which a beneficiary designation was in place should be subject to the presumption of resulting trust. The plaintiff residuary beneficiaries of their mother’s estate sought an order setting aside the 2007 beneficiary designation for the mother’s RRIF, under which the defendant, their brother and another residuary beneficiary of the estate, was named. The evidence suggested that the deceased had relied upon the defendant, who lived with her and drove her to appointments after the death of the parties’ father in 2002.
After addressing the issue of whether a presumption of undue influence applied to the RRIF beneficiary designation (and finding that it did not because a beneficiary designation is not an inter vivos gift), Justice McKelvey turned to the issue of the principle of resulting trust, writing (at paras 44, 46):
In my view…there is good reason to doubt the conclusion that the doctrine of resulting trust applies to a beneficiary designation. First, the presumption in Pecore applies to inter vivos gifts. This was a significant factor for the Court of Appeal in Seguin, and similarly is a significant difference in the context of a resulting trust. Further, the decision of this Court in Calmusky has been the subject of some critical comment. As noted by Demetre Vasilounis in an article entitled ‘A Presumptive Peril: The Law of Beneficiary Designations is Now in Flux’, the decision in Calmusky is, ‘ruffling some features among banks, financial advisors and estate planning lawyers in Ontario’. In his article, the author comments that there is usually no need to determine ‘intent’ behind this designation, as this kind of beneficiary designation is supported by legislation including in Part III of the Succession Law Reform Act (the “SLRA”). Subsection 51(1) of the SLRA states that an individual may designate a beneficiary of a ‘plan’ (including a RIF, pursuant to subsection 54.1(1) of the SLRA.)
It is also important that the presumption of resulting trust with respect to adult children evolved from the formerly recognized presumption of advancement, a sometimes erroneous assumption for a parent that arranges for joint ownership of an asset with their child is merely ‘advancing’ the asset to such adult child as such adult child will eventually be entitled to such asset upon such parent’s death. The whole point of a beneficiary designation, however, is to specifically state what is to happen to an asset upon death.
As a result, the defendant was entitled to retain the proceeds of his mother’s RRIF, as the plaintiffs unable to establish any intention of their mother to benefit her estate with the asset without the benefit of a presumption of resulting trust.
In light of the conflicting applications of Pecore under the Calmusky and Mak Estate decisions, it will be interesting to see how this issue may be further developed in the case law. For the time being, however, it may be prudent to take care in documenting a client’s wishes to benefit an adult child by way of beneficiary designation in the same manner as we typically would in situations of jointly-held property.
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Our readers will already know about the recent approval of legislation providing for will validation in Ontario under Bill 245, the Accelerating Access to Justice Act, 2021. The act received Royal Assent in April 2021. The changes under Schedule 9, which addresses amendments of the Succession Law Reform Act, RSO 1990, c S.26 (the “SLRA”), come into effect on January 1, 2022 (other than the update to virtual will witnessing in counterpart, which has already been made permanent under the revised Section 4 of the SLRA).
As of January 1, 2022, a new Section 21.1 of the SLRA will read as follows:
(1) If the Superior Court of Justice is satisfied that a document or writing that was not properly executed or made under this Act sets out the testamentary intentions of a deceased or an intention of a deceased to revoke, alter or revive a will of the deceased, the Court may, on application, order that the document or writing is as valid and fully effective as the will of the deceased, or as the revocation, alteration or revival of the will of the deceased, as if it had been properly executed or made.
No electronic wills
(2) Subsection (1) is subject to section 31 of the Electronic Commerce Act, 2000.
(3)Subsection (1) applies if the deceased died on or after the day section 5 of Schedule 9 to the Accelerating Access to Justice Act, 2021 came into force.
We have seen Section 21.1 referred to as both a will-validation provision and as a “substantial compliance” provision. In fact, Section 21.1 does not specify that substantial compliance with the formal requirements for a valid will under the SLRA is required and it may, accordingly be more accurately referred to as a will-validation provision. Either way, this is a significant change to the law of validity of wills in Ontario and our province, as of January 1, 2022, will no longer be a strict compliance jurisdiction where some documents clearly intended to function as a valid will are rejected and deemed ineffective for technical reasons.
Notably, the legislation carves out the use of electronic signatures. Some estate practitioners had been hopeful that electronic signatures would be accepted under the proposed estate legislative reform, given the recent increased acceptance of electronic signatures in the swearing/commissioning of affidavits and other legal documents and options available to verify their authenticity. Section 31 of the Electronic Commerce Act, 2000, SO 2000, c 17, excludes the application of that act to wills, codicils, testamentary trusts, and powers of attorney.
Accordingly, it appears that a will signed by the testator or witnesses using electronic means cannot be validated by the Court, even after the new Section 21.1 is introduced to the SLRA. For now (including after January 1 of next year), all wills still require actual, “wet” signatures in order to be valid. Furthermore, even if a will may be validated by the Court under Section 21.1, the uncertainty, delay, and expense relating to applying for court-ordered validation of a will may still be best avoided by seeking an experienced estate planning lawyer’s assistance in the preparation of a Last Will and Testament.
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Earlier this week, I had the pleasure of hosting the Family Dispute Resolution Institute of Ontario’s webinar on “Special Considerations When Valuing a Family-Owned Business” featuring Tom Strezos, Adam Guyatt, and Claudio Martellacci of Grewal Guyatt LLP. A link to their article on this topic is available here.
In the estates context, we often encounter situations where a family business needs to be valued after death. While we will often defer to experts for assistance in this regard, it can be helpful to keep in mind some considerations unique to family businesses that might affect valuation. These may include the following:
- Payroll considerations: including whether any family members are on the business payroll and paid compensation greater or less than standard market rates;
- Related party transactions: for example, whether a family member owns a supply company and that relationship may increase or decrease business expenses and impact its value upon any change in that relationship;
- Non-operating assets or liabilities: whether there are investments in assets that do not impact cash flow directly or liabilities payable to family members;
- Internal controls and governance: such as whether additional staffing costs would need to be considered as part of the valuation to reflect the situation if certain family members were no longer involved in the operations of the business;
- Transferability of goodwill and discounts for reliance on certain individuals: some family businesses may have limited assets beyond goodwill and it can be worthwhile to consider how a departing family members (such as a divorced spouse or incapable or deceased family member) may impact value going forward.
These considerations may be relevant to probate applications, estate administration, and certainly where there are claims against an estate or specifically against a family business.
Also discussed during yesterday’s webinar was the idea of business valuation expert hot-tubbing, whether formally at trial or otherwise working together in a similar manner to try and determine a reasonable value of a company for the purposes of settlement discussions. This is an Interesting concept that may work well for some estate matters where valuation issues are at play.
A recording of this week’s FDRIO webinar is available to FDRIO members free of charge and will be replayed at a fee for non-members later this month. More information is available at fdrio.ca.
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Recent discussion of proposed amendments to the Succession Law Reform Act under Bill 245 has raised questions of whether corresponding changes will be made to the Substitute Decisions Act, 1992. In particular, some estate lawyers are wondering whether a new validation section may be added to the Substitute Decisions Act to address the issue of court validation of powers of attorney (like the new section 21.1 of the Succession Law Reform Act has been proposed to allow courts to validate improperly-executed wills) and/or whether remote execution options may soon be made permanent for powers of attorney as well as wills.
The Substitute Decisions Act already contains curative provisions that allow the court to validate incapacity planning documents in circumstances where the documents are not executed in strict compliance with formal requirements.
Subsection 10(4) of the Substitute Decisions Act reads as follows with respect to the validation of Continuing Powers of Attorney for Property:
(4) A continuing power of attorney that does not comply with subsections (1) and (2) is not effective, but the court may, on any person’s application, declare the continuing power of attorney to be effective if the court is satisfied that it is in the interests of the grantor or his or her dependants to do so.
Subsection 48(4) of the Substitute Decisions Act reads as follows with respect to the validation of Powers of Attorney for Personal Care:
(4) A power of attorney for personal care that does not comply with subsections (1) and (2) is not effective, but the court may, on any person’s application, declare the power of attorney for personal care to be effective if the court is satisfied that it is in the grantor’s interests to do so.
Remote Execution of Documents in Counterpart
While the focus of discussions among estate lawyers regarding Bill 245 may be the proposed updates to the Succession Law Reform Act and, in terms of formal will execution, the amendment of section 4 as it relates to the requirements for the witnessing of wills, Bill 245 also includes proposed changes to the Substitute Decisions Act under Schedule 8.
A new section 3.1 of the Substitute Decisions Act is being proposed to add specific references to the use of audio-visual communication technology and counterpart signing options in the execution and witnessing of Continuing Powers of Attorney for Property and Powers of Attorney for Personal Care. Accordingly, if Bill 245 is passed, the remote and counterpart execution options made available during the pandemic will be made permanent for wills and powers of attorney alike.
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As many of our readers know, Ontario may be well on its way to becoming a jurisdiction in which wills may be validated notwithstanding that they are not strictly compliant with the formal requirements set out under the Succession Law Reform Act. However a recent decision of the Ontario Superior Court of Justice reminds us that Ontario, for now at least, remains a strict compliance jurisdiction where all formalities must be followed in the execution and witnessing of wills and codicils.
During the pandemic, many lawyers have taken advantage of the ability to assist clients in the remote execution and witnessing of their wills, as well as the execution and witnessing of wills in counterpart. In order to validly do so, the will must be witnessed using audio-visual communication technologies. In Re Swidde Estate, 2021 ONSC 1434, however, the drafting solicitor and other witness were neither in the physical presence of the testator nor in her presence by way of audio-visual communication technology, at the time that a codicil was signed. Instead, the witnesses were in communication with the testator over the phone (without video) at the time that she signed the codicil. The codicil was later couriered to the witnesses who then each signed the same document. The Court found that this did not meet the requirements set out under the Emergency Order in Council permitting remote execution and witnessing of wills, and the codicil could not be admitted to probate. This case may serve as a reminder to drafting solicitors to ensure that all requirements are strictly adhered to. In that regard, readers may find it helpful to use a checklist, such as that available through our website (linked here), when assisting clients in the remote execution of wills or other estate planning documents.
Bill 245 is currently in its third reading. Section 5 of Schedule 9 to the Bill provides for the Court validation of wills where a document sets out testamentary intentions but has not been properly executed or made. Such a provision would enable a judge in circumstances such as those in Re Swiddle Estate to validate a will or codicil that was not properly executed. This provision will come into effect no earlier than January 1, 2022 and will apply only to wills left by persons who have died following that date, subject to further changes before the legislation may be finalized and may ultimately take effect. Accordingly, especially while Ontario remains a strict compliance jurisdiction, it is important to exercise caution in ensuring that all wills we prepare are properly executed and witnessed.
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In recent months, an Ontario Superior Court of Justice province-wide Notice to the Profession has permitted the filing of applications for a Certificate of Appointment of Estate Trustee with a Will or a Certificate of Appointment of Estate Trustee Without a Will (“probate applications”) by email. Since then, the Rules of Civil Procedure were updated, effective January 1, 2021 to permit for the service of most court materials by email (among other updates).
Most recently, as of January 8, 2021, the Rules of Civil Procedure were further updated to provide for the options of serving notice of probate applications by email, courier, or personal service. Amended sub-rules 74.04(7) and 74.05(5) now read as follows:
Notice under this rule shall be served on all persons, including charities, the Children’s Lawyer and the Public Guardian and Trustee, and, unless the court specifies another method of service, may be served by,
(a) personal service;
(b) e-mail, to the last e-mail address for service provided by the person or, if no such e-mail address has been provided, to the person’s last known e-mail address; or
(c) mail or courier, to the person’s last known address.
Previously, the Rules of Civil Procedure required the Notice of Application in respect of a probate application to be served by regular lettermail.
Forms 74.06 and 74.16 (Affidavits of Service in respect of probate applications) have also now been updated to refer to these new manners of service of the Notice of Application in respect of a probate application. The revised forms are available here.
This further development in the modernization of estates law procedures is welcome and can be expected to better enable lawyers to assist clients in serving and filing probate applications more efficiently while working remotely during the pandemic and beyond.
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Technology is often considered as a tool more common among younger generations, with older individuals less likely to have embraced the internet and smartphones that, for many of us, have become important parts of our lives.
As lawyers know, the court system and legal profession have embraced technology in a number of new ways over the past year. From Zoom hearings to probate applications filed by email, we have had to adapt to better use technology in the practice of law. Recent news articles also suggest that the pandemic appears to be increasing the use of technology among older adults. In particular, the last ten months are noted to have seen:
- Acceptance of applications typically used primarily by millennials seeking convenience by other groups;
- For many, home delivery has become a “necessity”;
- Video chat has become a “lifeline for older adults”, who may otherwise be totally isolated;
- Increased accessibility to telemedicine and virtual caregiving support; and
- Online education for individuals of all ages, whether geared to enhance career potential or otherwise.
Many of these trends have the potential to assist seniors in aging in place during the COVID-19 pandemic, which no doubt has become an increasingly attractive option in light of the tragic situation at many long-term care facilities. Increased technology use by seniors is noted to be a positive that has emerged as a result of COVID to make independent living more comfortable and safer. There are also a number of online resources available with recommendations for seniors wishing to safely age in place, including this review of possible Home Modifications available through Family Assets, a resource for senior care.
It will be interesting to see how our use of technology continues to evolve to assist individuals at all stages of life during the pandemic and beyond.
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As estates practitioners know well, the medication that an individual takes could reflect underlying conditions that affect mental capacity. High doses of pain medications or other medication prescribed to treat serious physical ailments may also impact a person’s cognition.
A recent article on Considerable highlights the impact that certain common medications may have on mental capacity. An estimated 25% of seniors take “anticholinergic” drugs to treat a variety of common issues, including allergies, insomnia, and asthma. These medications are known to target acetylcholine, a chemical messenger that plays an important role in concentration, cognition, and memory. Some drugs (including over-the-counter medications as well as those for which a prescription is required) impact acetylcholine levels more than others and, when they are taken together, can have a cumulative effect. As a result, high doses of anticholinergic drugs, which are often believed to have only inconsequential side effects, can interfere with brain messaging and result in symptoms consistent with dementia.
The article refers to a patient whose score on a Mini-Mental Status Examination increasing from 11 to 28 out of 30 after a readjustment of her medication, which included common antihistamines and medication for mood and gastrointestinal issues. Further research is being conducted on the short-term and long-term effects of anticholinergic use, as there is concern that prolonged use may cause irreversible cognitive decline.
As our readers know, due to the nature of capacity standards and importance of reviewing capacity on a case-by-case basis at the time of the relevant decision or instructions, it may be worthwhile to consider whether medication, even that commonly prescribed to seniors, may be a contributing factor.
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Other blog entries that may be of interest: