Today on Hull on Estates Andrea Buncic and Jonathon Kappy discuss the guiding principles for estate trustees when allocating dividends between income and capital beneficiaries. If you have any questions, please email us at email@example.com or leave a comment on our blog page.
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The 2009 federal Budget contains a few items relevant to Estates, particularly with respect to Registered Retirement Savings Plans (“RRSPs”).
For a thorough review please see the 343-page document. A Bloc Quebecois amendment to the Budget yesterday evening was defeated; Opposition Party amendments have yet to occur. Budget speech to approval of the Budget motion could take up to four days.
While there are benefits for first-time home buyers in the Budget, and a host of infrastructure investments, not everyone is happy. Other media view the bad-time Budget as possibly providing the boost we need.
Regarding Estates, the Budget proposes that certain losses now be applied against terminal income – see page 318 of the Budget. The fair market value of investments held in an RRSP at the time of an RRSP annuitant’s death is generally included in the deceased’s income for the year of death. A subsequent increase in the value of the RRSP investments is generally included in the income of the RRSP beneficiaries upon distribution.
Similar rules apply in the case of Registered Retirement Income Funds (RRIFs).
There is, however, no existing income tax provision to recognize a decrease in the value of RRSP or RRIF investments that occurs after the annuitant’s death and before they are distributed to beneficiaries.
Budget 2009 proposes to allow, upon the final distribution of property from a deceased annuitant’s RRSP or RRIF, the amount of post-death decreases in value of the RRSP or RRIF to be carried back and deducted against the year-of-death RRSP/RRIF income inclusion. The amount that may be carried back will generally be calculated as the difference between the amount in respect of the RRSP or RRIF included in the income of the annuitant as a result of his or her death and the total of all amounts paid out of the RRSP or RRIF after the death of the annuitant.
Assuming the Budget motion passes, this measure will apply in respect of deceased annuitants’ RRSPs or RRIFs where the final distribution from the RRSP or RRIF occurs after 2008.
This change, especially in this uncertain economy, might help to make a weak financial situation a bit more palatable.
Thank you for reading our blogs this week. Enjoy your weekend.
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.
Listen to The Business of Being an Estate Trustee.
This week on Hull on Estate and Succession Planning, Ian and Suzana discuss the business side of being an Estate Trustee and talk about what to do with assets.
In a bit of a departure from recent blogs, today’s blog is less of an opinion piece and simply an update for practitioners that has been brought to my attention. Distributions to non-resident beneficiaries of Canadian estates and trusts have long been subject to sec.116 of the Income Tax Act. However in a change to its procedure that is certain to create further delay in obtaining a s.116 clearance certificate, the Canada Revenue Agency (CRA) has recently announced that any non-resident beneficiary must be assigned an Individual Tax Number, a Canadian Social Insurance Number, or a Temporary Taxation Number, before such clearance certificate will be issued. Apparently, the Auditor- General had made this one of her recommendations in her annual report. Taking the Individual Tax Number as an example, the typical waiting period for such a number (after all paperwork has been filed) has historically been approximately 120 days. The one silver lining is that, if a non-resident benficiary is assigned an Individual Tax Number for an initial distribution, that same number should be used for any further distributions. Nonetheless, the procedure can be cumbersome in that the non-resident beneficiary must now provide CRA with certified or notarial copies of documentation evidencing his or her name, date of birth, mailing address, and residential address (if different than the mailing address). Photographic proof of identity must also be tendered. In addition, a non-resident beneficiary must provide CRA with the tax identification number assigned by the jurisdiction in which they reside for tax purposes. CRA will apparently accept the usual suspects in any attempt to prove identity: i.e. passports and birth certiciates will be the first choice but driver’s licences will likely suffice to satisfy the requirement for two or more certified copies of documents evidencing identity. The relevant form to obtain an Individual Tax Number is a T1261 which can be obtained at the following link: http://www.cra-arc.gc.ca/E/pbg/tf/t1261/t1261e.pdf.
To carry on with the discussion of trustee/director conflicts of interest: the very stringent duties applying to trustees can clash with the equally stringent duties applying to directors of a corporation, when the trustee and director are one and the same person. Many corporations are speculative in nature. This is fine during a testator’s life, but the prudent investor rule, (as discussed in prior blogs and podcasts) may dictate that a speculative corporation is not the best investment for an estate.
Being a director of a corporation may require an entirely different skill set than a trustee, and may require specialized expertise that the trustee may not have. Since often a trustee becomes a director only as an afterthought, it may well be that the testator has not thought through the fact that the same person will need to fulfil both roles. If the executor also happens to be a shareholder of the corporation and keeps the estate assets invested in the corporation, there may be an obvious avenue for argument by the beneficiaries that the director used the estate assets improperly to enrich his interest in the corporation.