Tag: inter vivos
I recently had a chance to attend a very interesting continuing legal education program organized by the Ontario Bar Association called: “Rights and Limitations on an Attorney under a Power of Attorney”.
The program was chaired by Natalia Angelini of our office and Kimberly A. Whaley of WEL Partners. Professor Albert Oosterhoff, Professor David Freedman, Thomas Grozinger and John Poyser presented their views on various questions surrounding beneficiary designations.
An interesting debate took place at the end of the program on the question of whether beneficiary designations are testamentary instruments.
Professor Oosterhoff presented his view that, beneficiary designations are not in fact testamentary acts and should therefore be considered inter vivos acts. One of the reasons cited by Professor Oosterhoff in this regard that I found compelling is the fact that a beneficiary designation does not have to comply with the formalities required of a Will. The fact is that a beneficiary designation is often executed in passing and the same considerations do not apply to such a decision as typically would apply to the making of a Will.
Then again, a testator can make a handwritten Will in passing which will be just as valid as if made in accordance with the formal requirements. However, the fact that it is made quickly and in passing does not necessarily mean that it is not a valid Will.
Another reason cited by Professor Oosterhoff in support of his position was that, in his opinion, beneficiary designations take effect when they are signed. By way of a further explanation, Professor Oosterhoff clarified that a beneficiary designation is not dependent upon the designator’s death for its “vigour and effect”, despite the fact that performance does not actually take place until the designator’s death.
This opinion was not universally shared by the panel and some of the attendees of the program. One significant issue that was raised was that if beneficiary designations are indeed not testamentary acts, there could be potential tax consequences necessitating legislative reform.
It will certainly be interesting to see whether a new case or legislative reform will shed some light on this question. I can certainly see the appeal and the logic behind Professor Oosterhoff’s view.
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On September 25, 2016, 60 Minutes highlighted an interesting estate planning issue involving Pablo Picasso and inter vivos gifts. An inter vivos gift is a transfer of property from a donor to a donee, during the donor’s lifetime.
This story involved the family’s long-time electrician of 15 years and family friend, Pierre Le Guennec, who claimed he was gifted a briefcase filled with the artist’s work. The briefcase contained 271 works and 2 full sketch pads, all unsigned, that dated from 1900-1932. Many years later, Le Guennec contacted the Picasso Administration in order to get the pieces valued for his own succession planning purposes, and to have the pieces authenticated. Picasso’s son, Claude, a representative from the Picasso Administration, met Le Guennec and his wife and assumed that the pieces were stolen due to inconsistencies in the story about how the pieces came into Le Guennec’s possession. The pieces were valued at around $100 million.
In February 2015, after authorities had the artwork seized and Le Guennec and his wife had been put in custody, Le Guennec went on trial. The authorities could not prove the theft but convicted Le Guennec of possessing stolen property. He was given a two year suspended sentence, along with his wife, and is appealing.
The aformentioned raises the question of how to prove an inter vivos gift. In order to perfect a gift, and to have a valid gift, there are three necessary elements:
- intention to donate;
- acceptance by the done; and
- sufficient act of delivery and transfer
As per Johnstone v Johnstone,  OJ No 58, the onus of proving that a gift is valid is on the recipient of the gift. The recipient must show a clear and unmistakable intention by the donor to have given the gift, and that the gift was given voluntarily by the donor.
In order to challenge an inter vivos gifts, the challenger must prove undue influence, fraud, coercion, mistake, or lack of capacity. We have previously blogged, and uploaded a podcast, on undue influence.
In order to properly document an inter vivos gift, it is best for the donor to show evidence of intention. Intention is the most difficult aspect of the test to prove, and without intention, the gift cannot be perfected. It is best to have witnesses who have seen the giving of the gift, or professionals such as solicitors who may have been aware of the gift. If intention is not proven, it will be assumed that the “gift” was instead a resulting trust. If an individual can show intention of both legal and beneficial title, the exchange will be seen as a gift.
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I recently tweeted this article from the Financial Post, which discusses different methods of charitable giving and the tax benefits associated with each method.
With respect to inter vivos charitable gifts, the methods include:
- A one-time gift using cash, cheque or credit card;
- Gifting publicly traded securities;
- A one-time gift using flow-through shares; and
- Gifting real estate or private shares.
One-time gifts using cash, cheque or credit card, which are familiar to most individuals, are the most common type of gift and are often gifts of smaller amounts. The other type of one-time gift, which makes more sense for larger gifts, is a gift of “flow-through shares”. These are a particular type of stock involved in materials or energy exploration that qualify for significant government credits. This option is better for individuals comfortable with advanced tax strategies and high taxable incomes. The two remaining inter vivos methods of gifting publicly traded securities, private shares, or real estate, are best for large gifts and result in tax benefits with respect to capital gains.
With respect to testamentary giving, the article discusses leaving money in a will, leaving money through an insurance policy, and donating RRSPs and RRIFs. Gifting money to charities via a bequest in a will is familiar to many individuals. However, there are often more tax-efficient ways to give, since money in your estate has been fully taxed and probated along the way.
The other methods of testamentary giving discussed are less common. Leaving money through an insurance policy involves paying premiums on a policy for which a charity is the beneficiary, and receiving a tax receipt on the payment of that premium. This method is said to often deliver a higher rate of return than investing and leaving money to a charity in your will. It also has the benefit of providing certainty with respect to the amount you will be donating to the charity. Donating your RRSPs or RRIFs has a benefit in that, often, the taxes on an RRSP or RRIF may be the largest tax liability on an estate. By donating the balance of the RRSPs or RRIFs, you can effectively use a charitable gift to cancel out the tax.
If charitable giving is something that you consider important, consider gifting in a tax-efficient way so as to gain a benefit yourself, and to provide even more of a benefit to your chosen charity.
Thanks for reading.