Tag: estate tax

13 Dec

Be Careful When Holding Back (or Not Holding Back)

Paul Emile Trudelle Beneficiary Designations, Estate Litigation, Estate Planning, Trustees, Uncategorized, Wills Tags: 0 Comments

The recent decision of Muth Estate, 2019 ABQB 922, a decision of the Court of Queen’s Bench of Alberta, is a cautionary tale (and a scary one, at that) for estate trustees when distributing an estate.

There, the estate trustee distributed the estate to herself and other beneficiaries of an estate, subject to a holdback. The holdback was insufficient to satisfy amounts owing to CRA. The estate trustee then brought an application for an order requiring that the beneficiaries indemnify her for the amounts owing to CRA.

The estate trustee moved for summary judgment. Summary judgment was denied. The court found that the respondent beneficiaries had no obligation to indemnify the estate trustee.

As background, the estate trustee retained an accountant to prepare estate tax returns. The accountant advised that a holdback of $25,000 was sufficient. The estate trustee therefore held back $25,000, and distributed the balance of the estate. Unfortunately, that accountant did not file the required returns. A second accountant then completed the returns. The tax owing and the second accountant’s invoice totalled $60,772.19. The estate trustee paid this amount, and sought indemnification from the beneficiaries for their share of this amount.

(Query: Whether the estate trustee would have a claim against the first accountant?)

Of note, when making the distributions, the estate trustee could have but did not ask the beneficiaries to provide an indemnity.

The court held that the Income Tax Act imposed personal liability on the estate trustee for unpaid taxes where a clearance certificate is not obtained.

The court went on to find that one of the duties of an estate trustee is to file tax returns and pay taxes owing. As the estate trustee breached her duties, she was not entitled to an indemnity. Relief may have been available if it was the beneficiaries who instigated or requested the breach. However, this was not the case.

The natural corollary of that principle [breach of trust at instigation of beneficiaries] is that if the beneficiaries did not instigate or request the breach, they cannot be obligated to indemnify the trustee. In a fiduciary relationship such as that between a trustee and a beneficiary, the logic of that corollary is that as between the two parties, one who had the obligation to perform the duty and failed and one who had neither the obligation nor the means to satisfy it, it is the former who should bear the consequences of the action or inaction.

Interestingly, the judge dismissed the estate trustee’s motion for summary judgment, but, notwithstanding the finding that the beneficiaries were under no obligation to indemnify the estate trustee, did not dismiss the proceeding. The beneficiaries did not ask for this relief. The matter was therefore allowed to proceed. However, the estate trustee was warned that “if she continues with the lawsuit, she may face a significant costs award if another judge comes to the same conclusion at the end of the suit.”

Thank you for reading.

Paul Trudelle

08 Oct

A Failed Bill to Amend the Estate Administration Tax Act

Noah Weisberg Executors and Trustees, General Interest, In the News, Trustees Tags: , , , , , , , 0 Comments

According to the Legislative Assembly of Ontario, Bill 120: Estate Administration Tax Fairness Act, 2015, was brought before the Legislature seeking amendments to the Estate Administration Tax Act, 1998 (“EATA“).

The EATA was only recently amended, and entered into force on January 1, 2015.  Substantive changes were made at that time.  These changes have been the subject of Hull & Hull LLP blogs and podcasts, including such topics as: general changes to the EATA; frequently asked questions; the effect of the EATA on insurance policy proceeds; and, how to file the estate information return.

Bill 120 sought amendments to the EATA with respect to the following areas:

Value of the Estate –  In determining the value of the estate, the current procedure is to deduct any encumbrances on real property to the total estate value.  The Bill sought to amend the definition of ‘value of the estate’ by deducting not only the value of any encumbrance on any such property, but also any amounts bequeathed or devised for a charitable purpose.

Estate Administration Tax –  Currently, the amount of tax payable upon the issuance of an estate certificate is $5.00 for each $1,000 (or part thereof) for the first $50,000 of the value of the estate, and $15.00 for each $1,000 (or part thereof) of the value of the estate that exceeds $50,000.  Decreases to the amount of tax payable were proposed such that any estate valued at less than $50,000 would pay nil tax, with increased taxes owing for estates valued more than $50,000, with the maximum of tax payable to be capped at $3,250.

Disclosure to the Minister of Finance – Bill 120 also sought to limit the information given to the Minister of Finance and along with certain continuing obligations imposed therein.

The Second Reading of Bill 120 was held on September 24, 2015, at which time the motion was declared lost, and the Second Reading negatived.

Noah Weisberg

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