Howard J. Feldman made a presentation on the circumstances where a net family property ("NFP") equalization can set aside an estate feeze. He also discussed structuring the estate freeze transaction to qualify as an exclusion from the transferee child’s NFP.
To refresh: the classic estate freeze is a transaction involving a business-owning parent and his or her child. The parent transfers the equity shares in the business to the child but retains control of the company through preferential shares ("prefs"). The prefs have a fixed redemption and liquidation value, so all capital growth is with the equity shares transferred to the child. The parent "freezes" his own level of equity in the business, leaving future capital growth to the child. The goal is to avoid the child receiving the equity in the company on the parent’s death, because the capital gains tax liability would presumably have grown significantly. Capital gains tax is payable when the parent transfers the shares under the estate freeze transaction, but presumably smaller than it would be on the parent’s death.
The problem is that an estate freeze during the transferor parent’s marriage potentially removes assets from that parent’s property for the purposes of the NFP equalization. This can conflict with the philosophy of the NFP equalization payment, which is that marriage is a partnership and spouses’ collective increase in net worth during the marriage should therefore be evenly divided between the spouses at the end of the marriage. The parent’s subsequent death or divorce can trigger a challenge by the spouse of the estate freeze.
Among Mr. Feldman’s points and recommendations:
- the form of the transaction and relevant documents is critical (see the paper for reasons)
- the solicitor must have a well-documented file and written instructions from the client, due to the risk of the transaction being challenged
- Declarations to Revenue Canada and financial institutions are not considered binding in family law
- a gift of shares under a corporate reorganization may not excluded where there is not family trust, but beware that sooner or later the leading cases may be overturned (with a plethora of qualifications and circumstances detailed in the paper)
- gifting shares or the cash to buy the shares are subject to numerous, complex considerations (no pun intended)
This barely scratches the surface of the summary and recommendations. It is well-worth the read. The entire Six-Minute Estates Lawyer 2009 program can be purchased here.
Have a good day,
Pursuant to Section 3 of the Substitute Decision Act, the court may direct the PGT to arrange for legal representation for a person whose capacity is in issue in a proceeding under the SDA. The SDA further states that the person so represented shall be deemed to have capacity to retain and instruct counsel. However, section 3 counsel’s position and role remains somewhat murky. In Banton v. Banton, the court considered the import of an incapable person being deemed capable to retain and instruct counsel.
The court recognized that the position of section 3 counsel is “potentially one of considerable difficulty”. However, the court did not believe that section 3 counsel was in the position of a litigation guardian with authority to make decisions in the incapable person’s interest. According to the court, counsel must take instructions from his/her client and “must not act if satisfied that capacity to give instructions is lacking”. A very high degree of professionalism may be required in borderline cases where it is possible the incapable person’s wishes may be in conflict with his/her best interests and counsel’s duty to the court. The phrase offers precious little guidance to section 3 counsel, but does sound a cautionary note. In the circumstances, perhaps the best advice is for section 3 counsel to fully explain the situation to the court and ask the court’s advice and direction.
Finally, as an aside, the Ontario Government has now introduced legislation that would allow people to apologize with impunity. In other words, an apology will not be held against you in court. The hope is that “The Apology Act” will go a long way to defusing a contentious situation before litigation results. Sorry may, in fact, go a long way.
As always, thanks for reading.
Listen to the Health Care Consent Act.
This week on Hull on Estates, Megan Connolly and Sean Graham review the Golubchuk case out of Manitoba and discuss the Health Care Consent Act of Ontario.
Listen to The Absentee Act
This week on Hull on Estates, Christopher Graham and David Smith talk about The Absentee Act and some of the different scenarios that it applies to.
When an irresistable force meets an immovable object, we appeal to the Supreme Court of Canada.
In Canada (Privacy Commissioner) v. Blood Tribe Department of Health, 2008 SCC 44, the force is the Personal Information Protection of Electronic Documents Act ("PIPEDA") and the object is solicitor-client privilege. Section 12 of PIPEDA grants the Privacy Commissioner express statutory power to compel a person to produce any records that the Privacy Commissioner considers necessary to investigate a complaint “in the same manner and to the same extent as a superior court of record”. The issue in Blood Tribe was whether this conferred a right of access to documents protected by solicitor-client privilege. The Court held unanimously that the broad grant did not contain the requisite specific express authority to override privilege.
The Court stated the rule that "general words of a statutory grant of authority to an office holder such as an ombudsperson or a regulator do not confer a right to access solicitor-client documents, even for the limited purpose of determining whether the privilege is properly claimed. That role is reserved to the courts. Express words are necessary to permit a regulator or other statutory official to “pierce” the privilege."
The Court also noted that "while the solicitor-client privilege may have started life as a rule of evidence, it is now unquestionably a rule of substance applicable to all interactions between a client and his or her lawyer when the lawyer is engaged in providing legal advice or otherwise acting as a lawyer rather than as a business counsellor or in some other non-legal capacity."
Speaking of the Supreme Court of Canada, the law you’re looking for just might be in the "unreported judgments" section of the Supreme Court’s user-friendly website. How does a Supreme Court decision go unreported?
Have a great day,
Cases for Increasing and Decreasing Compensation – Hull on Estates and Succession Planning podcast #122
Listen to Cases for Increasing and Decreasing Compensation.
This week on Hull on Estates and Succession Planning, Ian and Suzana discuss cases for increasing and decreasing compensation.
Listen to Declarations of Death Act
This week on Hull on Estates, Sean Graham and Rick Bickhram talk about the Declarations of Death Act. They discuss what happens when a person goes missing from a jurisdiction and some possible remedies.
Listen to Dependant Relief.
This week on Hull on Estates, Natalia Angelini and Craig Vander Zee discuss dependant relief and reference a variety of cases that utilized the Succession Law Reform Act.
Listen to The Investment Accounts.
This week on Hull on Estates and Succession Planning, Ian and Suzana conduct a quick lesson on capital encroachment and discuss the role of investment accounts in the passing of accounts.
Listen to Alter Ego Trusts.
This week on Hull on Estates, Natalia and Chris discuss what Alter Ego Trusts are and the pros and cons of using Alter Ego Trusts.