Life insurance can be an important part of an estate plan, be it taken out to fund payment of anticipated tax liabilities triggered by death, to assist in supporting surviving family members, or to equalize the distribution of an estate within the context of the gift of an asset of significant value (such as a family business) to one child to the exclusion of another, who can be designated as beneficiary of the policy.
In a time when many Canadians are facing their mortality and taking the pause from normal life as an opportunity to review and update estate plans, many Canadians are turning their minds to other aspects of estate planning, including supplementing an estate plan with life insurance. A recent Financial Post article suggests that life insurance applications have doubled during the pandemic, as more Canadians take steps to plan for the unexpected during this period of uncertainty.
At the same time, premiums for new permanent life insurance policies have increased by as much as 27%. While term life insurance policies may remain a more affordable option, they too are anticipated to become more expensive, with upcoming premium increases of up to 20%. The increase in premiums has been linked to lowering interest rates and restrictions to the investment options available to insurance companies.
Other changes to life insurance during the pandemic include the exclusion of the standard medical examination required in order to obtain some types of coverage. The maximum coverage offered by many providers without a medical exam has increased to reflect limitations to the ability for applicants to safely attend an in-person examinations. For other providers and types of plans, medical examinations are simply on hold.
Lastly, insurance companies have updated intake questionnaires to include COVID-screening questions. If an applicant is experiencing potential symptoms, they may be required to wait two weeks before taking out the policy, but are not typically ineligible from coverage altogether. Some insurers, however, are no longer offering new coverage to seniors or others who are at a higher risk of complications during the period of the pandemic.
One life insurance provider has already doubled its projected COVID-19-related payouts during 2020 from the figures it had released earlier this year. While there may have been changes to certain eligibility requirements and the cost of life insurance, it remains a suitable estate planning tool for many Canadians.
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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.
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Video conferencing has been around for about forty years. It has been used in criminal court bail hearings and on applications to the Supreme Court of Canada for more than thirty years in some parts of the country. There are many good reasons to now expand the use of video and other technology in the law of wills and estates. The technology “Genie” is now out of the legislative bottle it has been kept in for too long, and it is not likely to be put back in when this pandemic fully ends.
The changes made in the last month to how a will can be validly signed in Ontario have been made far more quickly than anyone expected. The substance of these changes has been dealt with in other Hull and Hull blogs. The Emergency Management and Civil Protection legislation in Ontario, and the Orders made pursuant to that legislation beginning on Tuesday March 17, 2020 have effectively amended past practice to such a degree that the usual caution of the legal profession has been surrendered. Wills can now be signed and witnessed over the internet. Counterpart signed wills are now allowed. Affidavits can be commissioned by video conference now. These and other changes have been made and implemented quickly, with effect to the core of basic principles. The legal profession in Ontario has not seen changes like this in the past one hundred years!
The changes are brought on by the circumstances of the current pandemic emergency and are necessary. It has been impressive to watch these changes being made so quickly. Immense credit is due to those involved. Led by the Attorney General of Ontario, Doug Downey, and with the Deputy Minister, lawyers at the Ministry, members of the Estate Bar, and others, they have all truly done monumental work. On Monday May 4, 2020 a notice was posted on the Ontario Court of Justice website that included the following statement that the Court would be, “…working closely with its justice partners, including the Ministry of the Attorney General, to adopt technology that will increase participants’ ability to access the Court’s services using remote means, such as by the electronic filing of court material, remote scheduling processes, and remote hearings.”
It is interesting to ask however, while changes were happening incrementally in other areas of the law over many years, why was there no progress in the area of execution of wills? It is important to also ask what further changes should be made at this time. For many lawyers the recent storm of events and the subsequent changes are anxiety making. Nevertheless, this is the time further permanent changes should be considered. What should be of interest now is how technology can be used to benefit all going forward. Before the timing of the window for change closes this should become an important discussion among estate lawyers.
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The way that we practice law has shifted rapidly over these past couple of weeks as we social distance ourselves. This includes the adoption of electronic means of communication such as video conferencing for things that would have seemed impossible only a couple of weeks ago such as the witnessing of Wills or the commissioning of affidavits. There has also been a significant expansion of the courts hearing matters virtually, with the court currently hearing urgent matters virtually through the use of video conferencing or conference calls with the scope of what is being heard appearing to be expanded.
Although, generally speaking, I believe that most legal practitioners would likely be in agreement that the court and/or the various administrative bodies have responded fairly quickly to implementing new electronic methods and means of practicing law under trying times, this does not necessarily mean that the shift to the more virtual form of practicing law is not without its hiccups or concerns.
One of the areas that may need further consideration is the application of the “open court” principle if hearings are to shift to being heard virtually. It is generally accepted that a fundamental principle of our justice system is that the courts are open to being attended by anyone in the general public, with the court only restricting the general public’s access to attend and/or review a matter under very limited circumstances. As matters shift to being heard virtually, with a potential attendee to a video and/or telephone conference likely needing an access code to attend the matter, is there the risk that the “open court” principle could be impacted?
The Toronto Star recently reported about the steps and efforts that they were having to take to still be provided with electronic access to matters before the court during the pandemic. Although the article notes that they were having difficulty being provided with access for certain matters, it noted that they had been successful in obtaining electronic access to matters in others. Hopefully as time progresses any issues are able to be worked out.
One unknown element is whether any of these changes will become permanent after the pandemic has subsided. If elements such as virtual hearings should become more permanent steps will likely need to be taken to ensure that as part of the more permanent shift to virtual and electronic hearings that the “open court” principle is not lost.
Thank you for reading and stay safe and healthy.
The reduced hours and filing capabilities of the court during the COVID-19 pandemic have raised some interesting questions surrounding the filing of probate applications. Although the court’s direction to file court materials by mail is likely of no concern for a majority of matters, as a probate application could contain the original executed copy of a Will as well as a potentially significant bank draft for any estate administration tax, you would likely be rightly hesitant to place such documents in the mail under the current circumstances for fear that they may be lost.
The potentially good news for those needing to file probate applications with the Toronto court is that it is our current understanding that the Toronto court is allowing probate applications to be filed in person at the court office daily between the hours of 10:00 am and 12:00 noon, and again from 2:00 pm to 4:00 pm. Although these filing capabilities and times are of course subject to change, at least for the time being those in Toronto appear to be able to file probate applications in person without having to concern themselves with the possibility of the application being lost in the mail. Those needing to file probate applications in jurisdictions outside of Toronto should check to see if they too are making an exception to allow probate applications to be filed in person and not by mail.
In the event that it does not appear that it will be possible to file the probate application in person, such that the probate application would likely need to be filed by mail, the individual wishing to file the probate application should seriously consider whether there is an urgent need to file the probate application or whether it could wait until the courts have fully re-opened. If you are advising a client in such a situation, you should clearly explain what would happen in the event that the original Will was lost, and that an application to prove a copy of the lost will would be necessary (together with the added time and expense). Although the presumption that the lost will was destroyed by the testator with an intention of revoking it could likely easily be overcome by the fact that the possession of the Will could be traced to after the testator’s death, there would still be added time and expense of needing to bring the lost will application.
In the event that the client does still decide to proceed with filing the probate application by mail, one way to potentially reduce some of the risk may be to have any probate fees paid by trust cheque from the law firm and not by bank draft. Although in the event that the application materials were lost in the mail the lost will application would likely still be required, at least the concern associated with losing an original bank draft (and potentially the associated funds) is lessened as a trust cheque should more easily be cancelled. Multiple notarial copies of the original Will should also likely be made prior to placing it in the mail.
Thank you for reading and stay safe and healthy.