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.
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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.
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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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In Canada a person generally has the freedom to leave their estate to whomever they choose; known as “testamentary freedom”. However, in many of the civil code countries of Europe, a portion of the estate must be distributed to legitimate heirs; known as “forced heirship”. In Portugal, legitimate heirs include the spouse, biological descendants, adopted children, and ascendants of the deceased. The reserved portion covers up to two thirds of the whole estate, with division of the estate generally as follows:
Spouse’s portion in absence of descendants or ascendants: 50%.
Spouse and Descendants: The reserved portion is two thirds; normally distributed per capita, but in any case the spouse gets a minimum of one quarter of the reserved portion (which results in one sixth of the whole estate).
Only Descendants: The reserved portion depends on the number of children. For one child it is 50%, for two or more it is two thirds.
Spouses and Ascendants: two thirds, of which two thirds are intended for the spouse and one third for the ascendants.
Only Ascendants: 50% for those of first degree, for further degrees one third.
In the case of an intestacy and no spouse, ascendant or descendant, the estate passes to the siblings and their descendants, in their absence to the family up to the fourth degree of kinship, and then finally to the State.
The testator’s freedom to leave the remainder of the estate after the reserved portion is not generally restricted except in some cases like: the deceased’s last treating doctor if the testament was written during the illness which caused the death, the priest of the community where he attended, or a curator, tutor, or administrator of the deceased.
If you are interested in further information on the topic of international inheritance we are pleased to assist, along with our lawyer colleagues in Lisbon Portugal.
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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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What do you do with an estate where the administration of the estate is all done and as an estate trustee or lawyer you are at the stage where you are ready to pay money to a foreign resident as a beneficiary of the deceased’s estate?
Do you charge HST to a non-resident beneficiary receiving money from an estate? The answer is – it depends.
The HST is a consumption value added tax (VAT) that is assessed incrementally based on the increase in value of a product or service at each stage of production or distribution. In theory, it is designed to pay for infrastructure and services provided by a state and funded by its taxpayers for services relied upon for that product or service. It is a tax that is used by many countries around the world. As of 2018, 166 of approximately 193 tax collecting countries employ a VAT, including all 35 of the more advanced Organization for Economic Cooperation and Development (OECD) members, except the United States which uses a sales tax system instead. The HST is used in provinces where both the federal goods and services tax (GST) and the regional provincial sales tax (PST) have been combined into a single value added sales tax (HST). In Ontario the HST is 13% of which 8% is the provincial portion.
The tax is structured in a way that mostly does not apply to non-residents. Many services provided in Canada are “zero-rated” for the HST when supplied to a non-resident. However, if a service is rendered to an individual, the individual generally has to be outside Canada while the service is being performed for there to be no HST. If legal services are provided to a non-resident or if the non-resident is receiving a bequest, then there is no HST charged,while the individual is resident in a foreign country.
There are situations where a person might be deemed to be resident although never having been in Canada. This would include when a person is subject to, or commences a court proceeding in Canada. Legal services and other advisory, consulting, or professional services provided to a non-resident are generally not charged except: a service rendered to an individual in connection with criminal, civil, or administrative litigation in Canada (however, a service rendered before the start of such litigation may be zero-rated and not charged); a service in respect of real property situated in Canada; a service in respect of goods situated in Canada at the time the service is performed, among others.
In regard to international inheritance and the HST it therefore depends if litigation was commenced in Canada in regard to that estate, or if there was some other event linking the beneficiary to Canada, other than the receipt of money. Where there is litigation then that portion of the service provided will be subject to the HST and should be charged to the non-resident. Otherwise, there is no HST charged to a non-resident beneficiary.
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The title of a seminar last week on genealogical research by a group in Toronto caught my interest and I was happy that I attended. Ron Wencer has been a speaker at many meetings of genealogical societies over the years and his talk this time was entitled: “My completely new Grandfather: the DNA Gods Giveth, and they Taketh Away”. His talk reminded me of how advancing technology changes society and how society and laws adapt in response. You only have to do an internet search to find numerous recent examples of DNA testing through outfits like Ancestry DNA or 23andme to see how some lives were changed by DNA test results. Among the stories you will find are those locating previously unknown siblings, children, or other family members that have resulted in everything from happy reunions to divorce.
In the case of Ron Wencer, he had begun researching his own family history over twenty years ago. He knew that his family was originally from Poland and that they had immigrated to New York, living in the Maspeth neighbourhood of Brooklyn. But his grandparents on his maternal side were initially a mystery. He was eventually able to find information on them. Both Michal Silakowski and his wife Marianna had died in the 1930s before their first grandchild was born, and not much family history had been transmitted, but the village that they were from was located.
Ron Wencer recently took a DNA test and allowed the results to be posted on the internet. After then connecting with other DNA test results and analyzing the results of first cousins, second cousins and so forth, and then going back up the family tree he came to a startling conclusion. Although all of the earlier research established that his grandfather was Michal Silakowski, the DNA genetically established that it was not possible that Michal Silakowski was the biological son of his Silakowski parents, the Silakowski great grandparents. One of the explanations is that perhaps in infancy this young boy was cared for by the Silakowski family. Such informal adoptions would have been common back then if there was a death of the mother during childbirth or for other reasons.
This however, raises an interesting question on tracing missing heirs in estates. This tracing can be required where there was no will, or where there was a will that resulted in an intestacy due to the predeceasing of a beneficiary or otherwise. It has usually been accepted that a Certificate of Birth from a Vital Statistics Agency showing the family connection is proof of the right to inherit. But, are we perhaps moving into new territory in the future, where DNA testing may be involved and may then “Giveth or Taketh Away” an inheritance?
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Robert Gordon Price began the practice of law in the small northern Ontario mining community of Kirkland Lake in 1952 when he joined his uncle Bruce Williams, and the Williams and Price law firm had its beginning. Bob, as he was known to friends and colleagues would practice law for over 65 years until his passing in Toronto on November 26, 2017 at the age of 92.
In or around the time Bob began practicing law, the International Law Commission began working on the issue of diplomatic and consular relations. After more than ten years of international preparations and after a discussion on the draft articles, countries proceeded to a Conference on Consular Relations, which was attended by delegates of 95 states. The Conference adopted the Vienna Convention on Consular Relations which was signed on 24 April 1963 and came into force on 19 March 1967. Article 37 provides that a country must “without delay” notify consular officers if a person dies while away in another country or has a guardian or trustee appointed over him or her. From this, certain international obligations would flow.
Around the same time, a miner, who was originally from Poland, died in Kirkland Lake. He died without a Will and his family in Poland had to be identified, located, and contacted. Arrangements were made in regard to the funeral, the body, and the estate. No one was quite sure how to proceed given the new treaty obligations, but the Polish Ambassador was put in contact with Bob. For Bob, it was a beginning of a niche law practice on international estates inheritance and heir locate in over 15 countries. Bob soon developed a practice where he was involved with almost all estates in Canada with a connection to Eastern Europe and the Soviet Union.
Part of Bob’s legacy are the international relationships that he built over many years. As international relations between countries continue to evolve and change, the relationships Bob established are even more important today.
Today, Hull & Hull LLP is working with Bob’s former colleagues around the world by assisting clients in solving complex and difficult problems involving international estate inheritance matters.
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