Tag: Inheritance Tax

23 Sep

Inheritance Tax as a Political Issue

Nick Esterbauer Estate & Trust, In the News Tags: , , , , , , , 0 Comments

Our blog has previously covered the issue of inheritance tax.

As a reminder, inheritance tax is charged on estates of a certain value or greater on a percentage basis.  Smaller estates (different amounts depending on the jurisdiction) may be exempt, with the applicable tax charged on the portion of the estate exceeding the exemption limit.  Inheritance tax does not apply to Canadian estates or their beneficiaries.  While we see individuals go to great lengths to avoid the payment of Estate Administration Taxes payable on assets administered under a probated will in Ontario and other provinces, the rate (at approximately 1.5% in Ontario) is significantly lower than what we see in jurisdictions where estates are subject to inheritance tax (up to 55% in Japan).

In particular, we have covered a number of developments in U.S. inheritance tax, which saw some fluctuations during Donald Trump’s presidency.  Trump had proposed the elimination of inheritance taxes all together.  More recently, President Joe Biden’s government has been considering a number of measures to increase the taxation of large estates: the reduction of the estate tax exemption to $3.5 million (from $11.7 million), increasing inheritance tax rates from 40% to 65%, and/or increasing taxes on capital gains in respect of inherited assets.  News reports suggest that there has been resistance to the proposed increased tax burden to estates as the proposed increased capital gains tax makes its way through congress.  However, the measures proposed by President Biden could generate an additional $213 billion to $400 billion over the next ten years.

Having just seen another federal election in Canada, it is interesting to follow along with how inheritance tax has been used as an important part of political agendas in other jurisdictions.  It will be interesting to see if inheritance tax or other taxes applied to estates become part of political platforms locally in coming years, as we continue to approach the greatest ever transition of wealth from one generation to the next.

Thanks for reading,

Nick Esterbauer

 

Other blog entries that may be of interest:

05 Aug

Estates Law and Ancient Rome

Suzana Popovic-Montag Wills Tags: , , , , 0 Comments

Few histories are as rich and riveting as the history of Ancient Rome, from the uncertain rise of the Roman Republic to the terrible civil wars that brought its ruin, and from the mad reigns of all-powerful Caesars to the eventual collapse of the Roman Empire, owing, generally, to invasions from without and corruption from within. Its history also shows us many of the roots of our legal traditions, including – as will be the focus of this blog – some precursors to modern-day estates law.

Witnessing Wills

In his biography of Coriolanus, the ancient historian Plutarch says:

“It was customary with the Romans of that age, when they were moving into battle array, and were on the point of taking up their bucklers, and girding their coats about them, to make at the same time an unwritten will, or verbal testament, and to name who should be their heirs, in the hearing of three or four witnesses.”

Ontario’s Succession Law Reform Act only requires two witnesses for proper execution of a will (section 4), although soldiers on active service may proceed by writing their wills without witnesses (section 5).

Capacity

In Ontario, we have instruments at our disposal to prevent or reverse dispositions tainted by incapacity. One may challenge an incapable testator’s will, or one may pre-empt abuse or needless loss with a guardianship application. In Ancient Rome, similarly, those individuals who attempted to give away everything they possessed (what we might call a “spendthrift” the Romans called a “prodigus”) were dealt with as though they suffered from a distemper of the mind.

Inheritance Taxes

Under Augustus – of whom it was justly said that he “made a desert and called it peace” – an inheritance tax of 5% was introduced (with some restrictions, such as that it applied only to well-off individuals). A little over a century later, the Emperor Severus increased this inheritance imposition to 10%. While these figures may seem high (or not high enough, depending on where you stand), they may be much lower than inheritance taxes elsewhere, such as in the United States, United Kingdom, France, Japan and South Korea. In Ontario we do not have an inheritance tax, but there are inheritance-like taxes, like capital gains taxes and probate taxes.

Gifting

There is a marked difference between Ancient Rome and our common law system with respect to gifting between spouses. Unlike modern Ontario, wherein couples often use joint tenancy as a tax-saving estates planning strategy, Roman spouses were prohibited from gifting to one another. While the rationale for this law is moot, it was likely intended to keep apart the property of each spouse’s bloodline.

Testamentary Freedom

The Romans, as well as their civil-law descendants of today, operated under what has become known as “forced heirship”, whereby testators are legally required to give to their children. As a previous blog notes, in modern France, a parent with one child must give that child one-half of his or her property. In Rome, the historian Gibbon says that “if the father bequeathed to his son the fourth part of his estate, he removed all ground of legal complaint”. This is in stark contrast to the common law, in which testators may plan their estates with near-total freedom.

Thank you for reading and enjoy the rest of your day!

Suzana Popovic-Montag & Devin McMurtry

27 Jul

Potential Inheritance Tax Implications of Quarantine

Nick Esterbauer Elder Law, Estate & Trust, General Interest, In the News Tags: , , , , , 1 Comment

Many parts of the world remain under some degree of lockdown due to the COVID-19 pandemic.  For older adults who may have limited access to assistance or company outside of immediate family during the pandemic, and/or whose transition to long-term care may have been delayed as a result, temporary relocation to live with supportive family members may be a suitable option.

As our readers know, inheritance tax is payable in respect of the assets of estates located in a number of jurisdictions, which do not include Canada.  In the United Kingdom, for example, an inheritance tax of 40% is charged on the portion of an estate exceeding a tax-free threshold of 325 thousand pounds (subject to certain exceptions).

One way that some families choose to limit inheritance tax is to gift certain assets, in some cases a family house, prior to death, such that its value will not trigger the payment of inheritance tax.  In the UK, if an asset is validly gifted at least seven years before death, inheritance tax will not be payable on the asset.  However, where the donor of the gift reserves the benefit of the property – for example, if he or she continues to live at real property gifted to another family member – the gift will not be valid for the purposes of inheritance tax calculations.

A recent news article highlights the risk that older individuals in the UK who move back into previously gifted property during the pandemic may lose the benefit of potential inheritance tax exclusions by falling under the “gift with reservation of benefit” exception as a result of benefitting from continued occupation of the gifted property.  While this risk may not outweigh the benefits of obtaining family support, it is a factor that a family may wish to consider as part of a decision to alter living arrangements.

Approximately 600 gifts have failed in the past several years, triggering up to 300 million pounds in inheritance tax in the UK.  It is certainly possible that these figures will continue to increase as a result of shared family accommodations during the pandemic.

Thank you for reading and stay safe,

Nick Esterbauer

 

Other blog posts that you may enjoy reading:

01 Oct

Art & Taxes (& Estates)

Hull & Hull LLP Estate Planning Tags: , , , , , , , , , , , 0 Comments

I try to seize every opportunity I can to learn about art.  In preparing today’s blog, I was intrigued to read about the UK’s Cultural Gifts Scheme and its relationship to estates.

The Cultural Gifts Scheme & Acceptance in Lieu allows UK taxpayers to donate important works of art and other heritage objects in return for a tax reduction, which includes inheritance tax.  The donated work is then held for the benefit of the public or the nation at an eligible museum or gallery.  According to this article from the Guardian, the Scheme was first introduced in 1910 as a way of allowing individuals to offset inheritance tax bills, and later, in 2013, to allow individuals to be able to make donations during their lifetime in order to offset future tax liabilities.

Any art admirer should have a look at the 2018-2019 Annual Report which provides a list of items that were received, along with some pretty pictures of the items :).  It is a feast for the eyes and the senses.  Some of the highlights include:

  • a Portrait of the Emperor Charles V by Peter Rubens, which has gone to the Royal Armouries in Leeds
  • a platinum and diamond necklace with black velvet ribbons, convertible to a brooch, made by Cartier in Paris c. 1908-1910, which has been allocated to the Victoria and Albert Museum
  • 361 botanical drawings by the illustrator Florence Helen Woolward
  • Bernardo Bellotto’s painting of Venice on Ascension Day, which settled £7 million of tax
  • Damien Hirst’s Wretched War sculpture, given by the artist’s former business manager Frank Dunphy settling £90,000 in tax

In Canada, although art can be subject to capital gains, and possibly other taxes, it is possible for a donor to limit, or avoid the tax altogether, including by way of claiming a charitable tax credit.  Individuals thinking about estate planning and/or donating art should seek the advice of a professional advisor to maximize the amount of savings.

Thanks for reading,
Noah Weisberg

If you consider this blog interesting, please see these other related blogs:

09 Oct

Attempts to Minimize Inheritance Tax

Nick Esterbauer Estate & Trust, Estate Planning, In the News Tags: , , , , , , 0 Comments

Previous entries in our blog have covered inheritance taxes in the United States and other jurisdictions and President Trump’s proposed elimination of the tax altogether.  Recent news coverage has zeroed in on how the family of the American president has allegedly evaded over half a billion dollars in tax liabilities that should have been paid on the transfer of significant family wealth.

Certain exceptions apply, but inheritance tax (more frequently referred to as “death tax” by President Trump himself) of 40% typically applies to assets of American estates beyond an initial value of $11.18 million.  This means that estates up to this size are exempt from inheritance taxes, while the wealthy engage in complex planning strategies to minimize tax liabilities triggered by death (some of which mirror those used by Canadians in an effort to avoid payment of estate administration taxes on assets administered under a probated will).

Despite Trump’s previous statements that he has independently earned his fortune without reliance on prior family wealth, The New York Times reports that he and his siblings together received over $1 billion from their parents’ estates and that $550 million (55% under the old inheritance tax regime) ought to have been paid in taxes.  However, in 1999-2004, during which years the estates of Fred and Mary Trump were administered, a rate of closer to 5% was paid in taxes.  Whether the tax-minimizing methods used by the Trump family were legitimate or questionable remains unclear:

The line between legal tax avoidance and illegal tax evasion is often murky, and it is constantly being stretched by inventive tax lawyers. There is no shortage of clever tax avoidance tricks that have been blessed by either the courts or the I.R.S. itself. The richest Americans almost never pay anything close to full freight. But tax experts briefed on The Times’s findings said the Trumps appeared to have done more than exploit legal loopholes.

Sometimes, the line between legitimate tax-minimizing planning strategies and outright tax evasion can appear thin.  It is important to avoid improper strategies that put the assets of an estate and their intended distribution at risk, and which may ultimately serve only to complicate and delay the administration of the estate.

Thank you for reading.

Nick Esterbauer

23 Feb

Adoption and Estate Planning in Japan

Laura Betts Estate Planning, General Interest, In the News Tags: , , , , 0 Comments

A recent article published in the Japan Times explains how changes to domestic tax legislation could be causing a rise in the number of adoptions in Japan.

Apparently, the tax changes which were introduced in Japan in 2015 lowered the existing tax exemption threshold from ¥50 million to ¥30 million and reduced the existing deduction of ¥10 million for each heir to ¥6 million per heir.

As a result, the estates of a significantly wider segment of the population are now subject to inheritance taxes, and there appears to be a corresponding rise in the number of individuals seeking to reduce their tax burden through adoption.

According to the article, adoption for the sake of “financial adjustment” has always been a common practice in Japan. In fact, such adoptions, usually of adults who only need to be at least one day younger than the adopting parent, constitute the overwhelming majority of adoptions in Japan. In many cases, adults are adopted when a family does not have someone to take over a family business or a male heir who can carry on the family name. The article states that more recently, however, such adoptions appear to be motivated by the desire to reduce inheritance taxes.

The article refers to a recent case of the Supreme Court of Japan, in which the deceased had adopted his son’s son (his “grandson”), thus giving him four heirs instead of three — his son, his grandson (now second son) and two daughters. As a result, the son’s family stood to receive more of the father’s assets than either of the daughters.  The daughters commenced proceedings seeking that the adoption be declared void as it had merely been intended as a tax-savings measure. However, the Supreme Court of Japan ruled that the intention to reduce the amount of taxes would not automatically annul the adoption itself and upheld the adoption, which many believe in effect, condones this practice.

This is not the first time adoption has been used in estate planning. Before same-sex marriage was legalized, adoption was used on occasion in Canada and the United States as a means of ensuring the transfer of an inheritance between same-sex couples. An article published in the New York Times in 2009, which outlines the use of adoption for such purposes can be accessed here.

Other Hull & Hull LLP Blogs & Podcasts that may be of interest to you:

Thank you for reading.

Laura Betts

SUBSCRIBE TO OUR BLOG

Enter your email address to subscribe to this blog and receive notifications of new posts by email.
 

CONNECT WITH US

TRY HULL E-STATE PLANNER SOFTWARE

Hull e-State Planner is a comprehensive estate planning software designed to make the estate planning process simple, efficient and client friendly.

Try it here!

CATEGORIES

ARCHIVES

TWITTER WIDGET

  • Substantial Compliance and the Dalla Lana Decision Are you caught up on the changes to the Succession Law Reform A… https://t.co/dUxnFBSe35
  • Today's article: Substantial Compliance and the Dalla Lana Decision Read the full blog here:… https://t.co/s3c9YX1WFR
  • Interesting: Dependant support claims need to be served on “all interested parties” Read today's article to learn… https://t.co/sxqLVEWCu1
  • The @LawSocietyLSO provides assistance and guidance when you are trying to locate a Will. Read Last Friday's artic… https://t.co/hoJIrdbDVe
  • Thompson and Virtual Litigation Today's article explores the questions surrounding the fate of virtual litigation.… https://t.co/nQ4KgbPP2V
  • Last Thursday's article: Applying the new standard for limitation periods. Read the full blog here:… https://t.co/tiPOz7skaK