Tag: ian hull

31 Jan

Hull on Estates #504 – Certificate of Pending Litigation

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This week on Hull on Estates, Ian Hull and Doreen So discuss injunctive relief and certificate of pending litigation in the case of Jaworski Estate v. Ricci, 2016 ONSC 3369.

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29 Nov

Hull on Estates #495: Revisiting Mutual Wills

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 This week on Hull on Estates, Ian Hull and Lisa Haseley discuss the Mutual Wills Doctrine. Link to Paul Trudelle’s paper: Mutual Wills A Review http://bit.ly/2fs2l5P

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27 Sep

Hull on Estates #486 – Developments in Testamentary Capacity

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This week on Hull on Estates, Ian Hull and Noah Weisberg discuss the development of testamentary capacity and steps a drafting solicitor should take in this regard.

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09 Aug

Hull on Estates #479 – Court Interference with a Trustee’s Discretion

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This week on Hull on Estates, Ian M. Hull and Stuart Clark discuss mala fides and bad faith, and when the court will interfere with a Trustee’s discretion.

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23 Nov

Department of Finance’s Response to Tax Amendment Concerns

Ian Hull Estate Planning Tags: , , , , , , , , , , , 0 Comments

In just over a month, starting on January 1, 2016, a number of amendments to the Income Tax Act will be coming into effect. These changes have been discussed on this blog before. On November 16, 2015, the Department of Finance issued a letter addressed to the Joint Committee on Taxation of the Canadian Bar Association and Chartered Professional Accountants of Canada, the Conference for Advanced Life Underwriting, and the Technical Tax Committee of STEP Canada. The purpose of the letter was to address the submissions of these organizations regarding certain amendments to the income taxation of trusts and estates, particularly concerns with respect to the income tax treatment of certain trusts subject to deemed realization on the death of a beneficiary.

With respect to tax deferral for alter ego trusts and spousal trusts, the new rules in subsection 104(13.4) provide that, upon death of the beneficiary, all the trust’s income for the trust’s taxation year must be included in computing the beneficiary’s income for the beneficiary’s final taxation year when the trust’s year ends (which will be the end of the day on which the beneficiary dies). Subsection 160(1.4) then makes the trust jointly and severally liable with the beneficiary for the portion of the beneficiary’s income tax payable due to inclusion of the trusts’ income.

There was an issue raised with respect to concerns that the amendments may apply in some cases with unfair and unintended results, within which were two sub-issues.

The first issue was the possibility that the income tax liability falling to the beneficiary will be ultimately borne by the beneficiary’s estate, even though the trust’s property, including any income, will be enjoyed by the trust’s beneficiaries, in some cases to the exclusion of the estate’s beneficiaries.

The second issue was the possibility that charitable donation tax credits could become stranded in the trust. If a trust makes a charitable gift of property after the death of the beneficiary, and the trust’s income is then deemed to be included in the beneficiary’s income, the trust will have no income against which to deduct any donation tax credit.

The Department of Finance, in discussions with the organizations to whom the letter was addressed, came up with an option to respond to these concerns. It was noted in the letter that the suggested solution would involve amending paragraph 104(13.4)(b) so that it would not apply to a trust in respect of the death of a particular beneficiary unless several factors are met, including that the beneficiary’s graduated rate estate and the trust jointly elect to have the paragraph apply. Accordingly, if no election is made, the tax liability for the trust’s income would remain with the trust.

With respect to the “stranding” of donation tax credits, the Department of Finance noted that the option above would include provision for a trust to be permitted to allocate the eligible amount of a donation made by the trust after the beneficiary’s death to its taxation year in which the death occurs.

Nothing has been implemented with respect to these issues or suggested options yet, nor is there a guarantee that the amendments will be implemented. However, the Department of Finance appears open to discussion and to working toward a solution that addresses the concerns raised.

Thanks for reading.

Ian Hull

27 Jul

Executor Renunciations: Dueck v. Chaplin, 2015 ONSC 4604

Ian Hull Executors and Trustees, Litigation Tags: , , , , , , 0 Comments

Being an executor is a lot of work and a job that can be trying at times, particularly where disputes arise among the beneficiaries and/or the deceased’s family members in relation to the assets of the estate.

If you are appointed an executor and you do not wish to act, you may execute a Form 74.11 “deed of renunciation” through which you may effectively give up the rights and responsibilities that come along with the role. This form of renunciation, however, is generally only available before any steps have been taken by the executor to administer the estate or apply for probate. A named executor, who has taken active steps to administer an estate and/or apply for probate will, in most cases, be required to apply to the Court to be removed. Upon such application, the Court may order that he or she complete the job.

This is precisely what occurred in the recent case, Dueck v. Chaplin.  The facts of that case are as follows:

Prior to his death, the deceased executed a Last Will and Testament that named his solicitor and his sister as the executors of his estate, and his children and his sister’s children as the beneficiaries of his estate.

The deceased had executed a prior Will many years earlier, in which he had named his wife as both the executor and sole residuary beneficiary of his estate.

At the time of his death the deceased was estranged from but still legally married to his wife, with whom he had been in the midst of contentious litigation regarding the division of their assets and custody of their children.

Following the deceased’s death, the deceased’s solicitor and the deceased’s sister, being the executors named under the deceased’s Last Will, began the process of gathering the deceased’s assets and paying the deceased’s outstanding liabilities. They also filed an Application for probate.

The deceased’s wife subsequently filed a Notice of Objection challenging the validity of the deceased’s Last Will.

Both the deceased’s solicitor and the deceased’s sister sought to renounce from their role of executor on the basis that they were conflicted given their involvement in the drafting and execution of the deceased’s Last Will.  (The deceased’s solicitor had met with the deceased and had drafted the deceased’s Last Will, and the deceased’s sister had accompanied the deceased to his various meetings with the solicitor.)

Upon hearing the case, the Honorable Justice Goodman referred to paragraph 66 of the decision of the Ontario Court of Appeal in the Estate of Herbert Washington Chambers, deceased, 2013 ONCA 511 in which Justice Gillese stated:

Renunciation is generally not available if a party has already “intermeddled” with the estate.  Intermeddling is the term used to describe the acts of a person who deals with an estate without having been formally recognized as the estate trustee.  As Kennedy J. explained, “while executors may renounce at any time, (a right which is usually exercised before applying to probate) the courts have been reluctant to allow an executor to renounce after having intermeddled in the estate, or after having applied for probate”: Stordy v. McGregor (1986), 42 Man. R. (2d) 237 (Q.B.), at para. 9. Even a slight act of intermeddling with a deceased’s assets may preclude an executor from afterwards renouncing: see Cummins v. Cummins (1845), 8 I. Eq. R. 723 (Ch.), at pp. 737-38. 

Following this precedent, Justice Goodman found that the executors’ intermeddling precluded them from renouncing, and that they were in fact the most appropriate individuals to propound the Last Will given their involvement in the drafting and execution of the testamentary document.

Thank you for reading.

Ian Hull and Laura Betts

13 Jul

Estate Planning and Tax: A Cautionary Tale

Ian Hull Estate Planning, Executors and Trustees Tags: , , 0 Comments

Much of the estate planning process involves minimizing taxes that might otherwise be due and payable from one’s estate upon death. On occasion, however, the end goal of attaining large tax savings has been known to entice people to bend the rules a bit too far.

A recent article written by Ben Steverman titled “The Estate Tax Dodge That Went Too Far” highlights one such example.

The article involves the estate of Julius Schaller, a wealthy businessman who once owned a grocery business in Philadelphia called J. Schaller & Co.  Steverman describes that when Schaller died in 2003, his executors set up a  $2.6 million dollar scholarship fund called the “Educational Assistance Foundation for the Descendants of Hungarian Immigrants in the Performing Arts, Inc.”  The $2.6 million dollar donation provided enough of a deduction to reduce Schaller’s estate’s tax bill to zero.

A year after Schaller’s death, the foundation awarded its first two scholarships – one to Schaller’s niece and one to Schaller’s nephew. Each of the niece and nephew got another set of scholarships the next year, as did another Schaller relative.

Steverman describes how the IRS cried foul and litigation that subsequently ensued. The foundation’s lawyers argued that the scholarship was technically open to all eligible descendants of Hungarian immigrants; however, the foundation never followed through on promises to advertise the scholarship in newspapers. While the foundation did send information to Scholarships.com and Fastweb.com in 2007, this was only after the IRS had commenced a formal audit.

On July 1, U.S. District Judge Reggie B. Walton ruled the foundation wasn’t a legitimate tax break. He held that “[t]he Foundation’s activities contravened the law in such a blatant and egregious manner that the Court could not come to any other conclusion.”

There are many ways to minimize estate taxes in Canada, several of which we have outlined in a previous blog post which can be viewed here.  Setting up a foundation, a charity or a scholarship fund can certainly minimize estate taxes if properly structured and carried out.

It is important to remember that executors can be found personally liable for losses they cause the estate. As such, if you’re acting as an executor it is important that you seek proper guidance from knowledgeable professionals when making investment decisions or contemplating tax minimization strategies. As illustrated above, tax minimization can quickly become tax avoidance if not properly structured or carried out!

Thank you for reading.

Ian Hull

29 Jun

Changing with the Times

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As you may have noticed, our blog has undergone a content freeze over the past two weeks. This was done to facilitate an overhaul of our website. The purpose of the update was to make a mobile-friendly site that meets accessibility standards as prescribed by the Accessibility for Ontarians with Disabilities Act.

Here are some of the changes you may notice. First, as a mobile-friendly site, we have incorporated a responsive design that automatically resizes content depending on the size of your screen. One person estimates that somewhere between 20 to 40 percent of online traffic to law firm websites comes via mobile searches. That number is expected to rise. Given our commitment to delivering high quality content, we also wanted a website that was easy to access, anywhere at any time.

Second, archived on our site is nearly 10 years of material touching on matters of estate and trust law. These include blogs, podcasts, videos and our newsletters (The Probater). The updated site makes finding content easier because the navigation structure is simpler. All of our content has been stored under “Resources.” As such, you are just one-click away from accessing the plethora of information available to you. All of this, we hope, makes your browsing experience simpler and more efficient.

As part of our commitment to delivering the best results for our clients, we hope that our new site delivers the best results for our friends who read this blog and those who frequent our website. We look forward to continuing the conversation regarding estate and trust matters and to serving you however we can.

Thank you for reading.

Ian Hull

08 Jun

Sham Trusts: A Reminder

Ian Hull Estate & Trust, Estate Planning, Trustees Tags: , , , , 0 Comments

Trusts offer a number of advantages in the estate-planning context, from deferring taxes, to sheltering assets from creditors. As a result, trusts are being used with ever increasing frequency as an estate-planning tool. Many clients, however, do not necessarily understand or appreciate the proper purpose for the trust vehicle or the restrictions that will apply to their management of the trust assets. It is important for those contemplating the use of a trust to understand that, if not properly constituted or carried out, the trust they create may be deemed void, and the intended advantages lost.

In order to create a valid inter vivos trust, there must be three certainties: a certainty of intention, a certainty of subject matter, and a certainty of objects. In other words, the person setting up the trust (the settlor) must intend to divest him or herself of ownership of certain assets, and intend those assets to be held by the appointed trustee(s) for identified beneficiaries. As such, it is important to understand that once the settlor transfers the assets to the trust, he or she neither owns or controls them. The assets will be held for the benefit of the beneficiaries in accordance with the terms of the trust and will be controlled by the appointed trustee(s).

Many clients establishing trusts, however, wish to retain control over assets by:

  1. being appointed the sole trustee,
  2. retaining veto power over any other appointed trustees, or
  3. appointing a compliant trustee(s).

These types of arrangements should be treated with caution, as there is a high likelihood they will result in the trust arrangement being deemed a “sham” and void as a result. If deemed void, the trust is treated as though it never existed in the first place, and as a result, any advantages for which the trust was created, such as tax avoidance or protection from creditors, will be lost.

In other words, a sham trust is one in which the settlor does not truly intend to dispose of the assets settled on the trust, but rather, merely wishes to create the impression that the assets have been disposed of, while in reality maintaining control of them throughout.

If a trust is challenged as a sham, the settlor and trustee(s) will be unable to rely solely on the wording of the trust agreement in order to illustrate their requisite certainty of intention. The court is authorized to look further to the conduct of the settlor and trustee in setting up and managing the trust to determine whether the trust was validly constituted. If it can be shown that the settlor and trustee(s) intended to deceive or misrepresent the actual transaction from the outset, that trust will be deemed a sham and will be void as a result.

Thank you for reading,

Ian Hull

01 Jun

The Issue of Primogeniture

Ian Hull Estate Planning, General Interest, In the News Tags: , , , , , , 0 Comments

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.

Thank you for reading,

Ian Hull

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