Wage increases are not proportionate to the astronomical rise in the cost of living. As a result, it is not all that uncommon for some to live “pay cheque to pay cheque” – especially those millennials just beginning their careers, starting a family, and hoping to buy property. Even those who have attended graduate programs (many of whom spend several years paying off the massive debt accrued by such ambitions), have double income earning families, and who hold esteemed positions in the workforce, still struggle to put aside any significant amount of money for retirement. Consequently, many young people make the unwise mistake of counting on their impending inheritance to fund their retirement.
According to Ipsos Reid survey, 35% of Canadians are relying on an inheritance to fund their futures. Although baby boomers as a generation possess great wealth, there are several reasons why that fortune might not land in the hands of millennials.
Firstly, individuals might deplete their assets while still living. Given the steady increase in life expectancy, individuals are living longer and correspondingly, their wealth must last longer. For some, this might mean living lavishly in their retirement years and travelling the world. Others who aren’t so lucky might be plagued by illness requiring extensive care. In the latter scenario, savings can be quickly consumed by these unforeseen health care expenses. For context, a private room at a long-term care home in Ontario costs on average $2,640 a month. Retirement homes, not subsidized by the government, cost approximately $3,204 a month if an individual requires assistance.
Another reason why an inheritance should not be counted until it is received is due to the volatility of the stock market. An unexpected downturn in the stock market, or a poor investing decision, could result in a retirement portfolio plummeting and thus no inheritance left to pass along.
Lastly, some parents might share the same beliefs as investing icon Warren Buffett, who infamously remarked that he would leave his children “enough money so that they would feel they could do anything, but not so much that they could do nothing.” A 2014 study by the Insured Retirement Institute confirmed that although in the past over two-thirds of baby boomers reported that they would leave their children an inheritance, this number dropped to just 46% in 2014. It appears that more parents might agree with Buffet’s philosophy than expected. As a result, it seems wise to consider your potential inheritance as a welcome bonus rather than a given.
Thanks for reading – and enjoy the rest of your day!
Suzana Popovic-Montag & Tori Joseph
It’s often referred to as the largest transfer of wealth in human history. “Baby boomers,” the post-war generation born between 1944 and 1964, are expected to transfer what Forbes has called “jaw-dropping amounts” to younger generations. Over the next 20 years, the United States alone will see a transfer of $30 trillion dollars. A 2020 Bloomberg opinion article points out that the top 1% of US households will receive 35% of all inheritances. In Canada, however, half of all Canadians expect to receive an inheritance, and 63% expect to leave one.
So how do these numbers breakdown?
- Canadians who are married, own property, and have an income of $80,000 or more are most likely to leave an inheritance.
- Only 69% of those planning to leave a legacy use a financial professional for their testamentary strategy.
- The average inheritance in Canada, according to a 2014 BMO survey, is just under $100,000.
It’s not all good news. The Office of the Superintendent of Financial Institutions (“OSFI”) is an independent agency of the Government of Canada that supervises and regulates federally regulated banks, insurers, trust and loan companies. In July of 2020, the OSFI released data showing that Canadian seniors are achieving record debt levels through reverse mortgages: $4.5 billion. An increase of $4 billion in 10 years. Reverse mortgage interest can be high. The December 2020, 5-year interest rate on a traditional mortgage was 1.69%, while the 5-year reverse mortgage rate was closer to 5%. Reverse mortgage rates compound and balloon and it’s easy to see how the collected debt could skyrocket. This is particularly so older Canadians are able to stay in their homes for longer.
So while so many younger Canadians are expecting an inheritance, and indeed that expectation is forming part of their long-term financial plans, caution and careful planning should be encouraged if that inheritance is already saddled with debt. While this blog has encouraged estate discussions between family members in the past, it’s important to make your heirs aware of any responsibilities and options for settling your reverse mortgage debt when the time comes.
Thanks for reading!
Ian Hull and Daniel Enright.
 Ian Hull also discusses the subject of the family conference in his book, Advising Families on Succession Planning – The High Price of Not Talking
On November 25, 2020, the beautiful game lost one of its greatest legends, Diego Maradona. The famous Argentine footballer passed away at the young age of 60 years old, leaving behind millions of admirers around the world to mourn his death.
Maradona also left behind many children. In addition to his eight recognized children, there are supposedly at least two others claiming to be his offspring. The net worth of Maradona’s estate remains to be determined, as does the question of whether he made a Will. Nevertheless, should any opportunistic long-lost children succeed in proving paternity, they may have a claim to a share of Maradona’s estate.
In Ontario, a long-lost child could likewise benefit from their parent’s estate. A child has a statutory entitlement to a share of their parent’s estate where the parent dies without a Will. Pursuant to Part II of the Succession law Reform Act, those who have a right to inherit on an intestacy include the surviving spouse and the “issue”, or descendants, of the deceased.  The courts have confirmed that for the purposes of intestate succession, descendants are restricted to blood relatives (with the exception of adopted children, who have the same rights as a biological child). Thus, any purported child seeking an interest in an intestate estate must prove that they are the biological child of the deceased. If an illegitimate child can establish parentage, then they are entitled to share equally in an intestate estate with those born inside of marriage.
In the case of a testate estate, an alleged child of a deceased person may have a right to any bequest made in the deceased’s Will that is based on parentage. For example, a Will may provide for a gift to the testator’s “issue” or “children”. Unless a contrary intention is included in the Will, any person born outside of marriage who successfully proves parentage could be considered a part of the class of “children” or “issue” entitled to the gift.
Those purporting to be a child of the deceased can prove their familial relationship by presenting documentation like an Ontario Birth Certificate from a Vital Statistics Agency. If this documentation is not available or further evidence of kinship is requested by the estate trustee, DNA testing can also be used. Courts have recognized DNA testing as a reliable, efficient, and effective method of establishing parenthood in probate matters. Section 17.2 of the Children’s Law Reform Act and section 105(2) of the Courts of Justice Act grant Ontario courts the jurisdiction to order DNA testing to assist in determining a person’s parentage.
Thanks for reading!
 Joshua Nevett. Maradona: Why the football icon’s inheritance could be messy (December 6, 2020), online: BBC News <https://www.bbc.com/news/world-latin-america-55173630>
 Peters Estate (Re), 2015 ABQB 168 (CanLII), <http://canlii.ca/t/ggmgg>; Child, Youth and Family Services Act 2017, S.O. 2017, c. 14, Sched. 1, s. 217 <https://www.ontario.ca/laws/statute/17c14#BK297>
 Children’s Law Reform Act, R.S.O. 1990, c. C.12, s. 17.2 <https://www.ontario.ca/laws/statute/90c12#BK23>; Courts of Justice Act, R.S.O. 1990, c. C.43, s.105(2) <https://www.ontario.ca/laws/statute/90c43#BK146>
The last will and testament of the gunman responsible for Nova Scotia’s mass shooting in April 2020 was recently made public. The gunman’s will names his common law spouse as the executor of his estate, estimated to be worth around $1.2 million. However, the gunman’s spouse has renounced her right to be executor of his estate and it is now being administered by the Public Trustee. It was also rumoured that the spouse had renounced any interest she may have had in the gunman’s sizable estate.
Whether the gunman’s partner did in fact relinquish any inheritance remains to be confirmed. However, there are a multitude of reasons why someone may choose to waive their right to an inheritance, including:
- Emotional grounds;
- Personal moral or ethical grounds;
- To avoid taking possession of an undesirable or costly asset, such as real property that requires significant repairs or maintenance;
- To avoid subjecting assets to potential creditors if the beneficiary is on the brink of bankruptcy or involved in a lawsuit; or
- To allow the asset to pass to a secondary beneficiary.
For an overview of what is required to properly disclaim an inheritance, you can read Ian Hull’s blog here.
As shown by the above list, even where a beneficiary does not plan to benefit personally from an inheritance they may still be interested in what happens to that inheritance. In such situations, the beneficiary may want to think carefully about whether disclaiming their inheritance is the best option.
It is important to note that a person can only disclaim a gift if they have not yet benefited from the assets and, once disclaimed, that person has no control over the assets. In other words, a beneficiary who renounces a gift should not have anything to do with those assets either before or after they have been disclaimed. This also means that the beneficiary should not have any say in who receives the inheritance.
If a person wants to disclaim their inheritance in order for it to pass to a secondary beneficiary, they should confirm whether the deceased’s will or intestacy laws, as applicable, provide for that outcome. If it does not, or if the person wishes to direct their inheritance to some other individual or charity, there is another option: they can accept the inheritance and give some or all of the assets to whomever they choose. Depending on the beneficiary’s particular goals and circumstances, accepting an inheritance and distributing the assets as they see fit may be preferable to disclaiming the assets.
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The transfer of inter-generational wealth has long been a way for families to grow from one generation to the next. Many parents plan the transfer of their wealth at a time when their children are adults, and may be married with families of their own. And while in many respects the saying “what’s mine is yours, and what’s yours is mine” is true when it comes to marriage; it may not always be true when it comes to divorce. This is a key consideration for parents who wish to exclusively benefit their child with a gift or inheritance in the event of divorce.
The Family Law Act (“FLA”) provides guidance on how assets may be divided in the event of divorce. Section 4(2) states that property (outside of a matrimonial home) that was acquired by gift or inheritance from a third person after the date of marriage does not form part of that spouse’s net family property. Donors and/or testators may also expressly provide that income from said property is to be excluded from the spouse’s net family property. The FLA further provides that property (other than the matrimonial home) into which the gift or inheritance can be traced will also be excluded.
If a donor or testator’s intention is to have these assets excluded from a net family property calculation, it is encouraged that they formalize their intentions through proper deeds and/or wills.
Moreover, it is equally important for recipients of gifts and/or an inheritance to be mindful of where those assets are allocated upon receipt. For example, a recipient of a gift of money may want to be cautious of placing these funds in a joint bank account, where the assets may become commingled and difficult to trace.
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ODSP – How long do you have to put an inheritance into a trust before it counts against your asset limit?
Yesterday I blogged about the potential for an individual who receives benefits from the Ontario Disability Support Program (“ODSP”) to place up to $100,000.00 from an inheritance they receive into a trust for their benefit without such funds counting against the maximum asset limit they are allowed to have to continue to qualify for ODSP. Although the use of such a trust can work as an effective tool to help insulate an ODSP recipient from the risk that an inheritance they receive could disqualify them from ODSP, as there is a deadline by which such a trust can be established it is important that ODSP recipient acts quickly to create the trust.
As noted in my blog yesterday, the ability for an ODSP recipient to establish a trust so that any inheritance would not count against their asset limit is governed by the Ontario Disability Support Program Act (the “Act“) as well as O.Reg. 222/98 (the “Regulation”). Although neither the Act nor the Regulation establish a deadline by which such a trust needs to be established, the Government of Ontario has released Policy Directive 4.7 which states that ODSP recipients may be given up to six months from receiving their inheritance to establish the trust. From the perspective of the Government of Ontario, if the ODSP recipient does not put the funds into the trust within six months of receiving the inheritance, the funds will begin to count against their maximum asset limit. As a result, if after the six month deadline the trust has not been created and the inherited funds push the ODSP recipient over the maximum asset limit they will lose their benefits.
Although the Government of Ontario appears firm in their position that an ODSP recipient has a maximum of six months to place any inheritance into a trust before the funds will count against their asset limit, it should be noted that as neither the Act nor the Regulation provide for any deadline by which the trust must be established that some people have argued that the six month deadline proposed by the Ministry should not be considered law and can be extended. Such an argument was raised before the Ontario Social Benefits Tribunal in 1711-09594 (Re), 2018 ONSBT 5888, wherein the Tribunal ultimately agreed to extend the deadline for a trust to be established to ten months after an ODSP recipient’s benefits had initially been terminated for going over the asset limit for not creating the trust within six months. In coming to such a decision the Tribunal states:
“(8) Section 28(1) does not specify a time period within which an inheritance must be converted into a trust in order for it to qualify as an exempt asset.
(9) The Tribunal finds that in the absence of specific guidance in the legislation, it is to be inferred that an ODSP recipient should be given a “reasonable” amount of time to establish a trust and thereby exempt inheritance funds from his or her asset calculation. What is “reasonable” will in turn be determined by the circumstances present in each individual case. Such an interpretation allows effect to be given to section 28(1)19 and is in keeping with the purposes of the Act.” [emphasis added]
Although decisions such as 1711-09594 (Re) show that the six month deadline to establish the trust can be extended by the Tribunal to allow an ODSP recipient a “reasonable” amount of time to establish the trust before the inherited funds will count against the asset limit, as the Government of Ontario continues to reference the six month deadline in Policy Directive 4.7 for the trust to be established it is likely wise to continue to consider the deadline for the trust to be established to be six months.
Thank you for reading.
The use of planning tools such as a “Henson Trust” is an often discussed topic in the estate law world for what can be done to allow an individual who receives benefits from the Ontario Disability Support Property (“ODSP”) to receive an inheritance from an estate without losing their benefits. Although the Henson Trust can be an effective tool to allow an individual to receive an inheritance from an estate while not losing their benefits, as a central tenant of the Henson Trust is that the inherited funds do not “vest” in the beneficiary until the trustee makes a distribution in their favour (thereby allowing funds in the trust not to count against the asset limit provided for by ODSP before they are distributed), a beneficiary and/or Estate Trustee cannot create a Henson Trust after the testator has died as the inherited funds have typically already “vested” in the beneficiary and therefore would count against the asset limits for ODSP. As a result, if a beneficiary who receives an interest in an estate is also an ODSP recipient (and the Will did not use a tool such as a Henson Trust to ensure the inherited funds do not count against the ODSP qualification criteria), there is the risk that the beneficiary could lose their ODSP benefits as a result of the inherited funds putting them offside the ODSP qualification criteria.
Although advance planning is always preferable when dealing with a situation in which a potential beneficiary receives ODSP, sometimes for whatever reason a testator does not take steps prior to their death to ensure that their estate plan includes tools such as a Henson Trust that would allow the beneficiary to receive the inheritance as well as continue to receive their benefits from ODSP. Should this occur, although the options available after the testator’s death are more limited to the beneficiary, there remain certain remedial steps that could be taken by the beneficiary to help to insulate them against the risk that their newly inherited funds would disqualify them from ODSP.
The general parameters for who is entitled to ODSP and how it is to be administered is governed by the Ontario Disability Support Program Act (the “Act“), section 5(1) of which provides that the government through regulation is to establish a maximum “asset limit” for an individual who receives ODSP. The regulation that establishes the asset limit is O.Reg. 222/98 (the “Regulation”), section 27(1) of which sets $40,000.00 as the current maximum “asset limit” for an individual who receives ODSP (although such an asset limit is potentially higher if the individual has a spouse or dependants).
As a result of section 5(1) of the Act in collaboration with section 27(1) of the Regulation, if an ODSP recipient’s total assets exceed the $40,000.00 maximum asset limit after receiving their inheritance they would likely lose their ODSP benefits. To this respect, if the potential inheritance the beneficiary/ODSP recipient is to receive is significant, there is the very real risk that if no steps are taken to help to insulate the inheritance from counting against the asset limit the beneficiary would lose their ODSP benefits.
Although section 27(1) of the Regulation provides that the ODSP recipient’s assets may not exceed the maximum threshold, section 28(1) of the Regulation lists certain assets and/or interests which are deemed not to be included in the calculation of an ODSP recipient’s assets. These “non-counting” assets potentially include a trust that is established by a beneficiary with funds that they inherit from an estate. Specifically, item 19 of section 28(1) of the Regulation provides that the following would not count against the asset limit:
“Subject to subsection (3), the person’s beneficial interest in assets held in one or more trusts and available to be used for maintenance if the capital of the trusts is derived from an inheritance or from the proceeds of a life insurance policy.”
Section 28(3) of the Regulation then further provides:
“The total amount allowed under paragraphs 19 and 20 of subsection (1) shall not exceed $100,000.”
As a result of section 28(1)19 of the Regulation in conjunction with section 28(3), if an ODSP recipient receives an inheritance or the proceeds of a life insurance policy they are allowed to put up to $100,000.00 of such funds into a trust to be held for their benefit without such funds counting against their asset limit for ODSP. As a result, if the inheritance that the ODSP recipient is to receive is $100,000.00 or less (or close to $100,000.00 such that any excess over $100,000.00 would not put them offside the asset limit), the potential option of putting the inheritance into a trust for the benefit of the ODSP recipient may be available to help insulate the inherited funds from counting against the asset limit.
If a beneficiary/ODSP recipient would like to explore the possibility of establishing such a trust after death they should speak with a lawyer to ensure that the trust is drafted in compliance with ODSP requirements.
Thank you for reading.
Our firm has acted in some of Canada’s largest and most complex inheritance cases, and because of this recognition we get occasional inquiries about “Inheritance Scams”. It should be noted that legitimate inheritance locating efforts can be required for “missing heir cases”, but on legitimate estates you would not be asked for money or your banking information. “Inheritance Scams” do exactly that, with the lie that they will deliver a large sum of money to you, if you pay some of the fictional expenses in advance. The most interesting statistics that I found on this scam were on an Australian government website appropriately named “Scamwatch”. In 2018 in Australia there were 2,828 reports of “Inheritance Scams” of which 3.0% resulted in actual financial losses of $2,172,157 where the majority of losses were suffered by those who were over 65 years of age. For more information on how to protect yourself from scams:
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Approximately 7.5 million people came to Canada through immigration, according to the 2016 Canadian census. Among these, almost every country in the world is represented, big and small. Countries of origin include places like; Philippines, India, China, Italy, France, South Korea, Germany, the United Kingdom, and the United States among others. A lesser number arrived from Lithuania, itself a smaller country on the Baltic Sea with a population today of about 2.8 million. Currently, about 60,000 Canadians claim Lithuanian ethnic origin. As a result of the relationships between families in the two countries, international inheritance law questions can arise. There can be beneficiaries named in wills who reside in the other country, or heirs to be located in the case of an intestate deceased.
According to Lithuanian law, acceptance of an inheritance is a very important legal act. This is a procedural step that a Canadian lawyer would likely observe with some curiosity. A beneficiary with a “testamentary reservation” as well as any other testate or intestate heir has to “accept” the inheritance. The law establishes a very short term of three months for doing this. Therefore, the heirs have to be very careful in order not to miss the term or must then turn to a court requesting an extension. The beneficiary of the testamentary reservation must inform the executor of the will of the acceptance, or the notary public of the place of succession. In the event where the testamentary reservation includes a right to real estate, then acceptance in all cases must be filed with the notary public. The notary issues a “certificate of the right to inheritance” and the testamentary reservation must be registered in the Public Register.
Testators have the right to place obligations, like when real estate or a private enterprise is devolved to another person for use during their life, or the revenue derived from that property. In the event where the testator establishes maintenance for somebody without specifying exact terms, then that person is generally entitled to board, accommodation, clothing and medical care. Those who study are entitled to have their study expenses paid during the duration of their study, but not longer than the age of twenty-four.
Currently, there are several litigation cases on the issues of testamentary reservation in Lithuanian courts. In the last 10-15 years there are now more Lithuanian wills containing provisions with testamentary reservations. However, some reservations are not allowed. For example provisions in a will that violate laws, like requiring: becoming a member of a particular organization in order to receive an inheritance, graduating from a particular college, or even a requirement to marry the testator’s daughter in order to receive the inheritance. Any such provisions, which, violate human rights and the Constitution, are considered null and void.
If you are interested in further information on the topic of international inheritance we are please to assist, along with our lawyer colleagues in Lithuania who have contributed to this blog.
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Once you have completed administration of all of the assets and dealt with all of the tax and other issues on an estate you then might face the problem of how to actually transfer money to a beneficiary resident outside of Canada. The wire transfer procedure will vary depending on which financial institution you use. Some will require double or multiple signatures on fax authorization documents. Others, with online cash management systems, will require duplicate approvals, often required to be on separate computers, with unique users and different passwords and logins.
Perhaps, most importantly, to transfer an international inheritance by wire you will need a SWIFT code designating the receiving bank branch. You will also need the name, address, and account number of your beneficiary and the name, address, and branch number of the receiving bank. SWIFT Codes are also called BICs and can be either 8 or 11 characters long.
What is a SWIFT code? The acronym SWIFT stands for the Society for Worldwide Interbank Financial Telecommunication. This organization has been designated by the International Organization for Standardization (ISO) as the bank registration authority pursuant to ISO 9362. SWIFT codes (also called BIC or Bank/Business Identification Codes) are used when transferring money between banks, particularly for international wire transfers. You should also be aware of the term International Bank Account Number (IBAN) pursuant to ISO 13616, as in the Eurozone, you’ll always need an IBAN and a SWIFT code. IBAN consists of up to 34 alphanumeric characters comprising: a country code; two check digits; and a number that includes the domestic bank account number, branch identifier, and potential routing information. Banks in the USA use SWIFT codes, but they don’t use IBANs. There are 35 countries in the extended Eurozone which are also within the SEPA (Single Euro Payments Area) which require IBAN numbers.
You will face other issues as well when doing an international money wire transfer, among which are what currency to transfer. Canada dollars or US dollars or Euros? What is the exchange rate and how will this be reflected in the amount received? What fee will your bank take for doing the transaction and will this fee amount be shown separately or taken off the funds transferred? What fee will be taken by the receiving bank? Is the receiving account able to receive the money in the currency sent or are there local restrictions? Are there issues with the receiving bank being sanctioned and subject to special restrictions?
One should take care with the transfer of money by wire internationally, which can be complicated and time consuming. But, the potential transfer of large sums of money into an incorrectly designated bank account is an error best avoided.
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