Category: Uncategorized

21 Feb

Estate Planning After Your Second Marriage

Hull & Hull LLP Estate & Trust, Uncategorized 0 Comments

In the past three decades, the proportion of divorced Canadian adults has more than doubled.  One consequence of the increasing divorce rate is that more individuals are entering into a subsequent marriage, after beginning a family with a previous spouse.

For estate planning, second marriages represent a challenge.  The estate plan for a testator who has been married only once, with all children born within that one marriage, is relatively simple.  When the testator has remarried, following a spouse’s death or a divorce, and has children from an earlier relationship, the estate planner has the task of balancing the demands of a new spouse with the protection and advancement of children from the prior marriage.

The assets of an estate can be divided for the benefit of these two groups, but the estate plan should satisfy any obligations that the testator may have with respect to his or her dependants.  If the testator does not leave adequate support for a surviving spouse, the survivor may be able to bring a dependant support claim against the estate.  As a result, assets intended to be transferred to named beneficiaries, whether passing through or outside of the estate, can be brought back into the estate to satisfy the dependant’s claim.

One popular option for planning for the provision of support to a surviving spouse is the establishment of a spousal trust.  A spousal trust allows a surviving spouse to benefit from assets during his or her lifetime, before the remainder is transferred to other beneficiaries, those often being the testator’s children from a previous relationship, after the survivor’s death.  A spousal trust can effectively support a surviving spouse, while also ensuring that the ultimate beneficiary of remaining estate assets is the person or group of people intended by the testator, rather than the beneficiaries of the surviving spouse’s estate.

Life insurance is another mechanism capable of benefitting one of two distinct groups after death.  The testator may designate one individual or group as the beneficiary of a life insurance policy, and leave other assets to the other person or group, pursuant to a will.

With remarriage, family dynamics remain the most important factor in formulating an effective estate plan.  It is important to delve into the dynamics within the family unit and predict not only how the dynamics currently operate, but also how they may change after the testator’s death.  Drafting solicitors should remind clients that the implementation of family plans tends to become more contentious than is anticipated.  It should be considered what will happen in the event of the testator’s death and what will happen to the assets of his or her estate.

The challenge of estate planning in the context of remarriage underscores the importance of advanced estate planning.  Marriage generally effects the revocation of any will that is executed prior to the date of marriage.  If a testator plans to leave assets to both a current spouse and children and/or other relatives from an earlier relationship, the estate plan should be updated.  Whenever there is a major change in the family, such as a birth, death, or marriage, the estate plan should be reviewed and, if necessary, amended.

Practice experience can inform what is most likely to happen when the testator dies.  An experienced estate planner can properly consider the dynamics involved, review with the testator what is likely to happen, and discuss with the client how the risk of a contentious estate administration can be minimized.  Ultimately, it is the client who will decide what they would like to do to address the issue of competing interests of a second spouse and the children of a previous relationship.

Attentive estate planning may not always solve the problems that can arise when a testator dies leaving behind a surviving spouse and children from a prior relationship.  However, such problems can be anticipated and planned for, with a view to avoiding disputes wherever possible.

Have a great weekend,
Suzana Popovic-Montag & Ian Hull

13 Feb

Taxation of Non-Resident Trusts

Hull & Hull LLP Uncategorized 0 Comments

Yesterday I blogged about the 2014 Federal Budget and the changes to the taxation of testamentary trusts and estates.  But the 2014 budget also contained other changes to the taxation of trusts that should be noted.

In particular, as a result of changes to the Income Tax Act, the “immigrant trust exemption” is essentially being abolished. Until now, individuals who are in the process of becoming Canadian residents have been able to take advantage of a tax exemption for up to 60 months (that is, 5 years), through the use of a non-resident trust.

The trust was not deemed a Canadian resident until the contributor had been resident for the 60 month period.  As a result of the new changes, as soon as a Canadian resident has made contributions to a non-resident trust, the trust will be deemed a Canadian resident.

The new rules mean that existing trusts that have been benefitting from the 60 month exemption will be taxed as of January 1, 2015.  Planners will have to carefully consider whether to wind up such trusts or continue with them.  Some commentators have said that these new rules will discourage new business class immigration to Canada.

Thanks for reading!

Moira Visoiu

12 Feb

The 2014 Federal Budget & the Taxation of Testamentary Trusts

Hull & Hull LLP Uncategorized 0 Comments

The federal government released its 2014 budget on Tuesday.  According to most reports, this is a boring budget with few surprises.  However, for estate planners this budget does confirm an expected but important change in the taxation of testamentary trusts. 

 

The Canada Revenue Agency defines a testamentary trust as follows:

 

“A testamentary trust is a trust or estate that is generally created on the day a person dies. All testamentary trusts are personal trusts. The terms of the trust are established by the will or by court order in relation to the deceased individual’s estate under provincial or territorial law.”

 

Historically, testamentary trusts were taxed at lower, graduated rates.  As a result of the 2014 budget, the long-term tax benefits of these trusts will be eliminated.  However, these graduated rates may still be available for the first three years following the date of death.  After the three year period, the trust will be taxed at the highest marginal rate.  While there are still many other reasons to set up trusts, individuals and estate planners will want to carefully consider these new tax rules when crafting their estate plan.

Thanks for Reading!

Moira Visoiu

11 Feb

Sawdon Estate v. Sawdon

Hull & Hull LLP Uncategorized 0 Comments

Earlier this month the Ontario Court of Appeal released it’s decision in Sawdon Estate v. Sawdon.  The decision provides an interesting discussion on cost awards in estate matters and in particular on the right of an estate trustee to be indemnified for the legal costs they incurred.  I recently did a podcast with David Smith on this decision which should be posted today, but I think the case is worth further consideration.

I will briefly summarize the facts in this case below.  The deceased, Arthur, was survived by his five children.  Prior to his death he transferred seven bank accounts into joint ownership with a right of survivorship with two of his sons.  The total value of the accounts was slightly over $1 million.  He told his sons that upon his death the money was to be divided amongst his five children equally.  He also left a Will which provided for specific bequests to his children and the residue to go to a charity called the Watch Tower.  His son, Wayne, was appointed estate trustee.
At trial, the Watch Tower argued that the bank accounts were held on a resulting trust for the estate.  Wayne and the other children of the deceased took the position that the accounts were not estate assets.  At trial, the Court found in favour of the estate trustee and beneficiaries and ordered the Watch Tower to pay the costs of the estate trustee on a partial indemnity basis.  Wayne sought an order that the balance of his legal costs be paid out of the estate.  The trial court declined to make that order.
The Watch Tower appealed the decision, including the costs order.  The estate trustee cross-appealed arguing that he should be indemnified from the estate for any costs not recovered from Watch Tower.
The Court of Appeal dismissed Watch Tower’s appeal and granted the estate trustee’s request for indemnification from the estate.  They reviewed the basic principles with respect to cost awards applicable in the circumstances.  In particular, they discussed the case law which provides that an estate trustee should be indemnified for his or her legal costs out of the trust unless they have (i) acted unreasonably or (ii) acted in their own self- interest.
In my opinion the most interesting part of this decision is the point made by the Court of Appeal that although Wayne took a position that the bank accounts were not part of the estate, and therefore he was not trying to enlarge the estate assets, the litigation did benefit the estate and he was not acting in his own self-interest.  Rather, he was fulfilling his duty as ab estate trustee to verify the assets of the estate and to ensure that the testator’s wishes were carried out.  The Court of Appeal was not troubled by the fact that Wayne stood to benefit in his personal capacity if the bank accounts passed outside the estate.  They also said that the estate trustee had an obligation to present evidence in his knowledge about the deceased’s wishes, and it would not have been proper for him not to advance such evidence and remain neutral in the proceedings.  Finally the Court of Appeal said that they saw no problem with making a “blended” costs award, where multiple parties pay a certain portion of the costs award.
In reaching its decision, the Court emphasized that if estate trustees are faced with the prospect of personally paying costs, then more people will decline such appointments and more estate trustees will avoid bringing proper matters before the Court.
This case should bring some comfort to estate trustees as it provides further authority for the proposition that estate trustees should ordinarily be fully indemnified for their legal costs out of the estate.

Thanks for reading!

10 Feb

Caring For Aging Parents

Hull & Hull LLP Uncategorized 0 Comments

As our population ages, more and more Canadians are in need of their children’s support.

With increasing rates of cognitive diseases, such as Alzheimer’s and early-onset dementia, greater numbers of seniors are becoming dependent on caregiving support as they age.  In the United States alone, there are 60 million family caregivers providing support for either their spouses, parents, or both.

An article in the Globe and Mail entitled, The Toughest Course at University: Caring for Aging Parents discusses an increasing trend in family caregiving: many parents are getting older and children are caring for their parents at a much younger age than in previous generations.

The article explains that many couples are choosing to have children later in life as they decide to first build a career and then have children later on. “Having children while going to school and then building a career is not easy, which explains why the age at which people are becoming parents has increased over the decades”.

Parents are getting older and, as a result, their children are the ones carrying the responsibility of caring for their parents at a young age.

According to data in the General Social Survey, in 1990 only 14 per cent of fathers and 6 per cent of mothers were expected to be over the age of sixty by the time their youngest child finished an undergraduate degree. However, by 2011, the share of fathers in that category has risen to 25 percent, and the share of mothers has more than doubled to 13 per cent.

Thanks for reading.

Ian M. Hull

 

07 Feb

Just Another Reason Why Communication is Key

Hull & Hull LLP Uncategorized 0 Comments

An article posted recently in the Toronto Star has highlighted another reason for why communicating with your children when estate planning is so important.

An online survey of 1,003 Canadians 18 years and over, conducted for the Bank of Montreal, has uncovered some troubling statistics regarding how many Canadians intend to fund their retirement. The reason this survey is relevant to estate planning is that 40% of those surveyed are relying on an inheritance to help fund their golden years.

While this figure is a little less disconcerting than the 34% who hope to win the lottery (for Lotto 649, a 1 in 14 million chance), the fact that so many are expecting an inheritance as part of their retirement plan could be very concerning for those who do not plan on leaving their children a significant inheritance. If this is the case, a conversation with your children about how much you expect to leave them would be well worth it, as such knowledge may motivate them to revise their retirement plans now rather than years down the road when it could be too late.

Thank you for reading.

Andrea Buncic 

06 Feb

Increased Fact-Finding Powers of Summary Motion Judges Recently Upheld by the Supreme Court of Canada

Hull & Hull LLP Uncategorized 0 Comments

In the recent Supreme Court of Canada decision, Hryniak v. Mauldin, released on January 23, 2014, the Court held that judges hearing summary judgment motions can use the extended fact-finding powers granted under Rule 20 of the Rules of Civil Procedure, amended in 2010, to avoid sending matters to trial which otherwise would have been previously.

Under Rule 20, summary judgment must be granted where there is no genuine issue requiring a trial. This will be the case where the judge is able to reach a fair and just determination of an issue on the merits by making the necessary findings of fact, and applying the law to those facts. Additionally, the judge must find that granting a summary judgment is a proportionate, expeditious and less expensive means to achieve a just result.

Rule 20 was amended in 2010 by granting summary motion judges additional fact-finding powers under Rule 20.04(2.1) and (2.2), allowing them to weigh evidence, evaluate credibility and draw inferences. For instance, motion judges now have the power to hear oral evidence where it can be demonstrated that such evidence will be of assistance. While it is more likely that the oral evidence required will be limited, there could be cases where extensive oral evidence is required. This in essence, allows a motion judges to hold a mini-trial on an issue.

In this case, the Court espoused that on a motion for summary judgment, under Rule 20.04 the judge must first determine whether there is a genuine issue requiring trial based on the evidence without using the new fact-finding powers. There will be no genuine issue requiring a trial where the summary judgment process provides the judge with the evidence required to fairly and justly adjudicate the dispute in a timely, affordable and proportionate procedure. Where this is not the case, however, the judge must determine whether a trial can be avoided by using the new powers under Rule 20.04 (2.1) and (2.2).

Significantly, the Court also held that where the motion judge exercises the new fact-finding powers under Rule 20.04 (2.1) and (2.2) to determine whether there is a genuine issue requiring a trial, this is a question of mixed fact and law and attracts deference. Such a determination should not be overturned absent palpable and overriding error.

These new fact-finding powers provide summary motion judges with the tools to adjudicate and resolve legal issues in an alternative forum to trial, potentially increasing access to justice while decreasing expense and delay.

Thank you for reading.

Andrea Buncic 

04 Feb

How to Avoid Time on the Bench when Estate Planning for Professional Athletes

Hull & Hull LLP Uncategorized 0 Comments

Most people would agree that playing a professional sport for a living seems like it would be a pretty amazing career. For example, according to Forbes online, Peyton Manning (quarterback for the Denver Broncos), earned $30 million dollars in 2013 between salary and endorsement earnings. While you might not want to be Peyton Manning right now in light of the recent Super Bowl XLVIII blow-out, $30 million dollars a year sounds pretty good- what could go wrong?

Well, according to an article in LifeHealthPro, entitled “The 6 biggest estate planning mistakes NFL players make” , quite a few things. Unlike other high-wealth individuals, the earning trajectory of professional athletes is significantly shorter and comes earlier on in life. While most of the business community earns more in their 60s than in their 40s, amassing their wealth over half of a century, the typical professional athlete will earn most of their money in a short period of time in their 20s and 30s. This in itself can cause significant financial and estate planning problems. One can imagine the obstacles in trying to convince a 22 year-old millionaire to speak to a financial advisor, let alone an estate planner.

Happily, the article also points out some strategic solutions that can be employed to assist these young and exceptionally gifted athletes in their financial and estate planning. Such tips could be especially helpful for some members of the Denver Broncos, who might find themselves needing financial assistance sooner than expected after Sunday’s performance (go 49’ers!)!

27 Jan

Deadly Fire in Seniors’ Residence Leaves Three Dead and Dozens Missing

Hull & Hull LLP Uncategorized 0 Comments

Tragically, a deadly fire on Thursday January 23rd in the Quebec village of L’isle Verte has claimed the lives of at least three seniors who were living in a seniors residence. Dozens of residents are still missing.

Many of the residents were over 85 years old and all except a few had limited movement and were confined to wheelchairs and walkers.

Pascal Fillion, who lives near the seniors’ home in L’Isle-Verte, told the National Post that he ran outside of his home to find a group of locals and firefighters at the scene trying everything to save the people inside.

Retired RCMP officer Pierre Filion, who had a cousin and an aunt living in the residence, said the tragedy has shaken the community.

Unfortunately, this is not the first time that a fire has claimed the lives of residents in a senior’s residence.

In August 1980, 21 one people were killed and 35 were injured in a fast-moving nursing home fire in Mississauga, Ont. Authorities said most of the victims died of smoke inhalation and extreme heat in the facility, which housed 198 residents.

In June 2009, a fire in a retirement residence in Orillia killed four people and left six elderly residents critically injured. A coroner’s inquest following the fire made 39 recommendations related to automatic sprinklers in retirement homes and assisted living centres. During the inquest, the Ontario Association of Fire Chiefs noted that it was the fourth coroner’s jury to call for the installation of automatic sprinklers in nursing and retirement homes.

The coroner’s inquest has led to a new law in Ontario, which took effect on Jan. 1. The law requires all retirement homes in the province to have automatic water sprinkler systems. However, it could take five to ten years to complete the installations.

Health Minister Deb Matthews stated that Ontario will consider speeding up the phase-in of sprinkler systems in nursing and retirement homes. Matthews stated, “the tragedy in Quebec has everyone asking is there something more we should be doing,” said Matthews. “There is a phase-in period (for sprinklers) so I think we do have to take another look to see if there’s anything we can do to accelerate that.”

In Ontario, more than 40,000 seniors live in approximately 700 retirement homes. This new law will help bring peace of mind to seniors living in the residence as well as to their loved ones.

We would like to offer our sincerest condolences to all those who lost loved ones in the fire in Quebec.

Thank you for reading.

Ian M. Hull

24 Jan

Out of this World Estate Planning

Hull & Hull LLP In the News, Uncategorized 0 Comments

Mars One, is a not-for-profit foundation planning to establish a permanent human settlement on Mars. As described on the Mars One website, the goal is to train human crews for life on Mars, and begin sending crews of people every two years starting in 2024. Mars One launched its Astronaut Selection Program in April 2013 which attracted over 200,000 applicants, almost 7000 of which are from Canada as reported by the CBC.

There are certainly a large number of interesting questions and issues regarding this ambitious project, let alone whether this plan is technologically feasible. In this blog, we will outline some of the estates issues that could arise if someone does accept a one-way ticket to Mars.

It will be important for any would be Mars settlors to consider what they will do with their assets after they leave earth. Presumably, earthly assets will not be needed for survival or life on Mars. Further, it is expected that there would be significant luggage restrictions, so you can’t take your possessions with you. Should Mars settlors gift their worldly possessions prior to heading to space as inter vivos gifts, or should they appoint an Attorney for Property and a Will to deal with their assets on death?

As it may be difficult, or impossible, to obtain a death certificate after the Mars settlors have left earth, inter vivos dispositions may be the easiest. For an inter vivos gift to be valid the following three conditions must be met:

a) the gift giver’s intention to give the gift to the recipient;

b) the acceptance of the gift by the recipient; and,

c) an act of delivery from the gift giver to the recipient.

It will be important for the Mars settlor to establish the gift, the acceptance, and delivery in writing, otherwise it may become expensive and difficult for the recipient to establish.

The taxes for disposition of certain assets such as Real Estate or RRSPs should be considered at the early planning stage, and it is likely that Revenue Canada is going to want to make sure it collects taxes upfront from any Canadians registered for Mars settlement.

Life insurance policies will likely cause very unique issues. If a Mars settlor has an existing life insurance policy it will be interesting as to whether the insurance company will be able to cancel such policies. A more practical issue is how would you make a claim for the payout on a policy without a death certificate? An insurance company would probably refuse to issue a policy for any person planning on moving to Mars.

Current status of the Mars One project can be found on the Mars One website, and funding donations can be made on Indiegogo until January 25, 2014 (11:59pm PT). It will be interesting to watch the development of this project and the unique legal issues that will result.

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