As 2020 begins to wind down and mercifully come to an end, we are reminded of new rules coming into force for administrators of trusts beginning January 1, 2021.
As part of its 2018 federal budget, the Government of Canada introduced new tax return filing and information reporting requirements for trusts. Currently, a trust must file a T3 return if it has tax payable on its assets, or income or capital is distributed to beneficiaries.
Going forward, the Canada Revenue Agency (CRA) will begin to collect detailed information on the identity of all trustees, beneficiaries and settlors, as well as any person who has the ability to apply control over trustee decisions about appointment of income or capital. This information includes the name, address, date of birth, jurisdiction of residence, and taxpayer identification number (“TIN”). This information must now be filed with a T3 return.
For some trusts, a T3 return may never have been required before, for others, these new reporting requirements could prove very onerous. Trustees and administrators are encouraged to plan ahead and seek the advice of a tax professional as non-compliance carries significant penalties of around $2,500.00 on top of any existing penalties.
When it comes to estate planning, the new rules will affect most express trusts, and settlors preparing their testamentary documents should also seek the advice of a planning professional. Especially as it is yet unknown how the new rules may affect the use of secret and semi-secret trusts.
Oosterhoff on Trusts (9th ed.) reminds us that with a secret trust, “the Will neither discloses the existence of the trustee, nor the beneficiary,” and under a “semi-secret trust, the Will discloses the existence of the trustee, but not the beneficiary” (p.830).
We are expecting the CRA to issue clarification and guidance in the coming months as the new rules yield a host of as yet unanswered questions, namely: By seeking out personal details from beneficiaries, does a trustee then risk breaching the terms of a trust that was settled on terms meant to stay private? Is there a risk of increased non-reporting through the use of secret trusts? And what happens if the required information is not available, or withheld?
As our managing partner, Suzana Popovic-Montag told the Law Times in February of this year, “There has been a historical lack of transparency in the administration of trusts and estates, and governments are now taking an interest in the use of these tools in the transfer of assets for taxation purposes.” Beyond the questions raised above, Suzana goes on to say that we should “‘expect concern surrounding privacy issues’ any time there are new or enhanced disclosure obligations.”
The federal government is looking to crack down on aggressive tax avoidance, and beginning January 1, 2021, a new era of disclosure will begin. While the full picture is not yet completely clear, we will keep you posted.
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Ian Hull and Daniel Enright
 The TIN includes a social insurance number for individuals, a business number for corporations and partnerships, or an 8 digit trust account number issued by CRA to trusts.
Yesterday, I blogged about estate planning for cryptocurrency, a type of digital asset. Today, I provide a snapshot of what happens to some of your other digital assets when you die.
Facebook: When a Facebook user dies, their profile can either be memorialized or permanently deleted. The Facebook user can opt for one or the other while they’re still living. If a user does not choose to have their profile permanently deleted, Facebook will automatically memorialize the profile whenever they become aware of the user’s death. When a user proactively chooses to memorialize their profile, they can appoint a “legacy contact” to manage their memorialized profile. The legacy contact will have the authority to manage the memorialized profile but will not be permitted to log in to the deceased’s account, read the deceased’s messages, and add or remove friends.
Instagram: When an Instagram user dies, their account can either be memorialized or deleted. Anyone can request for a deceased person’s account to be memorialized, but only an immediate family member can request for an account to be deleted. Instagram will not memorialize an account without sufficient proof of death, such as a link to an obituary or news article. To delete an account, the requester is required to verify that they are an immediate family member by providing documentation such as the deceased person’s birth certificate, death certificate, or a Certificate of Appointment of Estate Trustee for the deceased’s estate.
Twitter: When a Twitter user dies, a person authorized to act on behalf of the deceased’s estate or a verified immediate family member of the deceased can request to have the deceased person’s account deactivated. In order to complete this request, Twitter requires a copy of the requester’s ID and a copy of the deceased’s death certificate. Twitter also does not permit anyone to access the deceased person’s account.
LinkedIn: When a LinkedIn user dies, anyone can request to have that person’s LinkedIn profile removed. A person can request that an account be removed by filling out a form with information on the deceased and submitting the form to LinkedIn for their review.
Google: When a Google user dies, their immediate family members and/or the executor of their estate can request to close the deceased’s account. Google will not permit anyone to log into the deceased person’s account; however, individuals can ask Google to provide content from the account. With respect to these requests, a court order issued in the United States is apparently required before Google releases any information. To circumvent this, Google users can use their Inactive Account Manager to automatically share their data with “trusted contacts” after a period of inactivity.
As illustrated by the above, different online platforms restrict a family member’s and/or executor’s access to a deceased person’s online accounts to varying degrees. Notably, most platforms will not allow anyone to log in to a deceased person’s account. As such, if a person would like trusted relatives or friends to be able to access their online accounts following their death, they may want to take steps to ensure that their login credentials will be available to those trusted persons.
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The Ontario Court of Appeal recently considered the issue of whether the litigation files of the Office of the Children’s Lawyer are subject to a freedom of information access request in Ontario (Children’s Lawyer) v. Ontario (Information and Privacy Commissioner), 2018 ONCA 599. This appeal arose from a father’s request for the production of the Children’s Lawyers’ records. The Children’s Lawyer acted for the father’s children in the course of a custody and access dispute. Accordingly, a portion of the Children’s Lawyer’s records were privileged.
Justice Bennotto, in writing for a unanimous panel, found that the issue turned on whether the records are “in the custody or under the control” of the Ministry of the Attorney General for Ontario (“MAG“) for the purposes of the Freedom of Information and Protection of Privacy Act, R.S.O. 1990, c. F. 31.
The answer was no.
The Children’s Lawyer’s records are not in the custody or under the control of MAG because she operates separately and distinctly from MAG and,
“ [she] is an independent statutory office holder appointed by Cabinet through the Lieutenant Governor. She derives her independent powers, duties and responsibilities through statute, common law and orders of the court.
 To allow a disgruntled parent to obtain confidential records belonging to the child would undermine the Children’s Lawyer’s promise of confidentiality, inhibit the information she could obtain and sabotage her in the exercise of her duties. This would, in turn, impact proceedings before the court by depriving it of the child’s voice and cause damage to the child who would no longer be meaningfully represented. Finally, disclosure to a parent could cause further trauma and stress to the child, who may have divided loyalties, exposing the child to retribution and making the child the problem in the litigation.”
For those practising in the estates and trusts context, it is important to note that the role of the Children’s Lawyer is different in family law.
In civil matters that implicate a minor’s financial interest in property, the Children’s Lawyer acts as the minor’s litigation guardian and she is represented by the lawyers of her choice. In custody and access disputes, the Children’s Lawyer acts, at the request of the court, as the minor’s lawyer.
Bonus answer: the current Children’s Lawyer is Marian Jacko.
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Canada’s model legislation regarding digital assets, the Uniform Access to Digital Assets by Fiduciaries Act (the “Canadian Model Act”), was introduced in August 2016, and borrows heavily from its American predecessor, the Revised Uniform Fiduciary Access to Digital Assets Act (the “American Model Act”).
The Canadian Model Act defines a “digital asset” as “a record that is created, recorded, transmitted or stored in digital or other intangible form by electronic, magnetic or optical means or by any other similar means.” As with the definition appearing within the American Model Act, this definition does not include title to an underlying asset, such as securities as digital assets. Unlike the American Model Act, the Canadian Model Act does not define the terms “information” or “record.”
In the Canadian Model Act, the term “fiduciary” is also defined similarly as in the American Model Act, restricting the application of both pieces of model legislation to four kinds of fiduciary: personal representatives, guardians, attorneys appointed under a Power of Attorney for Property, and trustees appointed to hold a digital asset in trust.
One challenge that both pieces of model legislation attempt to address is the delicate balance between the competing rights to access and privacy. The American Model Act is somewhat longer in this regard, as it addresses provisions of American privacy legislation to which there is no equivalent in Canada. Canadian law does not treat fiduciary access to digital assets as a “disclosure” of personal information. Accordingly, under Canadian law, the impact on privacy legislation by fiduciary access to digital assets is relatively limited.
The Canadian Model Act provides a more robust right of access to fiduciaries. Unlike the American Model Act, the Canadian Model Act does not authorize custodians of digital assets to choose the fiduciary’s level of access to the digital asset. Section 3 of the Canadian Model Act states that a fiduciary’s right of access is subject instead to the terms of the instrument appointing the fiduciary, being the Power of Attorney for Property, Last Will and Testament, or Court Order.
Unlike the American Model Act, the Canadian equivalent has a “last-in-time” priority system. The most recent instruction concerning the fiduciary’s right to access a digital asset takes priority over any earlier instrument. For example, an account holder with a pre-existing Last Will and Testament, who chooses to appoint a Facebook legacy contact is restricting their executor’s right to access their Facebook account after death pursuant to the Will.
Despite their differences, both pieces of model legislation serve the same purpose of facilitating access by attorneys for or guardians of property and estate trustees to digital assets and information held by individuals who are incapable or deceased and represent steps in the right direction in terms of updating estate and incapacity law to reflect the prevalence of digital assets in the modern world.
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Accessing a Testator’s digital assets can be fraught with difficulty. Part of this difficulty involves the service agreements between the Testator and the service provider. These agreements often prevent the service provider from disclosing the Testator’s personal information.
Recently, Florida, following a trend in the United States, passed Bill SB 494, now known as the Fiduciary Access to Digital Assets Act (the ‘Act’). The legislation defines a digital asset as “……an electronic record in which an individual has a right or interest. The term does not include an underlying asset or liability unless the asset or liability is itself an electronic record.” It also provides of a definition of a fiduciary, which means “an original, additional, or successor personal representative, guardian, agent, or trustee.”
The Act appears to have two main purposes. It confers authority upon appointed fiduciaries to access and manage both digital assets and electronic records. The legislation also allows custodians of this information to disclose it to appointed fiduciaries where the procedural requirements have been met.
The Act includes a priority system for an individual to control the disclosure or non-disclosure of any or all of their digital assets or electronic communications. Depending on the circumstances, a direction for disclosure given through the use of an online tool may override a direction embodied in a Testator’s estate planning documents.
This Act incorporates model legislation drafted by the Uniform Law Commission. The draft legislation is currently being considered by a number of other state legislatures. The Act is effective in Florida as of July 1, 2016 and may apply retroactively to some individuals in certain capacities.
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Listen to the deemed undertaking rule.
This week on Hull on Estates, Paul and Allan discuss the deemed undertaking rule and its application to estate matters.