A recent article featured in the New York Times highlights the need to reconsider estate planning strategies in light of developments in the law of inheritance taxation.
As our blog has previously reported, during his presidential campaign, Donald Trump vowed to eliminate inheritance taxes, then payable on the value of American estates exceeding $5.45 million, altogether. To the disappointment of many wealthy citizens of the United States, President Trump has not carried out his promise and, while the exemption has been increased, inheritance tax remains payable in the United States in respect of estates of a size greater than $10 million.
The New York Times reports that these changes to the exemption in respect of inheritance taxation are temporary in nature and that the measures currently in effect will expire in 2026. At that time, Americans (and individuals who hold property of significant value in the United States) may need to amend their estate plans with a view to tax efficiency.
Gifts, including testamentary gifts, are not typically subject to taxation in Canada. While there is no Canadian estate or inheritance tax, assets that are distributed in accordance with a Canadian Last Will and Testament or Codicil that is admitted to probate will be subject to an estate administration tax (also known as “probate fees”). Many of our readers will already be aware of the relatively new requirement (as of 2015) that estate trustees in Ontario file an Estate Information Return with the Ontario Ministry of Finance within 90 days of the processing of a probate application. In some circumstances, details regarding both traditional estate assets and assets typically considered to pass outside of the estate are required, notwithstanding that the latter category may nevertheless be exempt from probate fees. Some anticipate that the law in Ontario may at some point be amended to require further details regarding assets passing outside of an estate in Estate Information Returns and/or the payment of estate administration tax or other fees in respect of these assets. Like variations in the exemptions to American inheritance tax, changes to estate administration taxes may in the future necessitate amendments to existing estate plans with a view to limiting the taxes payable on the transfer of wealth.
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I recently read an article that features a discussion of issues relating to seniors living in the “Little Tokyo” neighbourhood of downtown Los Angeles. In the context of North America’s aging population, the residents of Little Tokyo are becoming increasingly isolated, both socially and linguistically.
Nearly half of L.A.’s senior population was born outside of the United States, with almost one-third unable to communicate well in English. Over half of the inhabitants of Little Tokyo are “linguistically isolated” and live alone, factors which have the potential to create barriers to accessing healthcare and other services, including legal assistance.
In multicultural cities like L.A. or Toronto, lawyers often encounter clients, both young and old, whose first languages are not English. It can be helpful to obtain the assistance of an interpreter when we are not fluent in the same language as our clients. Below, I briefly summarize a couple of points relating to language barriers that may be important for estate lawyers to keep in mind:
- In Ontario, the Ontario Superior Court of Justice will normally process Certificates of Appointment of Estate Trustee only in respect of wills that are written in one of Canada’s official languages. Section 125(2)(b) of the Courts of Justice Act otherwise specifies that documents filed in courts written in another language, including wills being admitted to probate, must be accompanied by a certified translation. Especially if a will can be prepared in English and translated to the client at the time of its execution, this may represent an unnecessary expense and cause for delay in obtaining probate.
- When working on matters involving the rights of an incapable person, a language barrier may skew the results of a capacity assessment. The Public Guardian and Trustee’s list of designated capacity assessors includes a number of professionals who are able to conduct assessments in languages other than English, for more accurate results. In the event that a person is determined to suffer from cognitive issues and the parties seek the appointment of counsel under Section 3 of the Substitute Decisions Act, it is best to propose the appointment of a lawyer who speaks the individual’s native language.
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The commencement of litigation requires a Plaintiff to have standing to sue; and Probate (or a Certificate of Appointment of Estate Trustee With (or Without) a Will) is required if an Estate Trustee wishes to obtain Judgment against a Defendant.
While an action can technically be commenced without probate (see the remedial provisions of Rule 9 of the Rules of Civil Procedure discussed below), the Court will not grant Judgment in favour of an Estate unless the Estate Trustee has been granted authority to administer the Estate.
The rationale for this requirement is nicely explained by Professor Oosterhoof (in Oosterhoof on Wills and Succession Chapter 2):
The grant of probate is only evidence (really, the only evidence) which a court will recognize that a person has authority to administer the assets of the deceased. For this reason, while an executor can do many acts of office before obtaining a grant he or she cannot obtain judgment before that time, although he or she can commence an action. Similarly, no action can be maintained against a named executor unless he or she has obtained a grant of probate.
This position was supported by the Ontario Court of Appeal in Re Eurig Estate (appealed on other grounds to the Supreme Court of Canada) where Morden A.C.J.O. stated:
Further, apart from the general legal duty to administer the estate promptly and efficiently, which almost invariably requires the executor to obtain probate, the law imposes the requirement that an executor must have probate to prove his or her title when an estate matter is before the court. Letters probate are the only evidence of an executor’s title which a court will receive (see Hull and Hull, Macdonnell, Sheard and Hull, Probate Practice, 4th ed. (1996) at pp.185 and 188), even in a case where the defendant is willing to concede that the executor has title without evidence of probate: Re Crowhurst Park; Sims-Hilditch v. Simmons,  1 W.L.R. 583 (Ch), (at p. 792)
Moreover, the Estates Act ensures the estate trustees named in a Certificate of Appointment of Estate Trustee have sole authority in respect of the estate:
- After a grant of administration, no person, other than the administrator or executor, has power to sue or prosecute any action or otherwise act as executor of the deceased as to the property comprised in or affected by such grant of administration until such administration has been recalled or revoked.
In the event that the Certificate of Appointment of Estate Trustee is obtained subsequent to the commencement of the Action, the Rules of Civil Procedure, contain a remedial provision:
9.03 (1) Where a proceeding is commenced by or against a person as executor or administrator before a grant of probate or administration has been made and the person subsequently receives a grant of probate or administration, the proceeding shall be deemed to have been properly constituted from its commencement.
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Not every estate requires probate, but it’s a near essential for many. And while lawyers retained to undertake the probate process on behalf of estate trustees are entitled to compensation, it must be fair and reasonable in the circumstances.
The main reason to seek probate is to gain the ability to deal with certain kinds of assets or certain kinds of third parties. In particular, if the estate includes real estate that is not held in joint tenancy, probate is usually necessary to transfer title to the property.
There can be a lot involved. The probate process involves a court application and the verification and valuation of estate assets, amongst other things. While it can be a straightforward process for many estates, it can be a complex undertaking in others. For example, the deceased may have owned property that needs an appraisal, or had multiple bank and investment accounts, or owned assets in foreign jurisdictions.
Legal fees will vary
For this reason, it’s never a “one size fits all” approach when determining a fair and reasonable legal fee for the probate process. Because it’s not always possible at the beginning of a matter to determine how long it’s going to take to do the job, many lawyers charge by the hour. However, others charge from 1.5% to 2% of the estate value to obtain probate. In Ontario, that can equal or exceed the probate fee (estate administration tax). While these amounts might also include fees for some of the estate trustee’s work, they don’t always. The courts have taken notice, and are requiring lawyers to have separate files: one for legal work and one for executor’s work. You can find an excellent discussion of these points and others relating to probate costs here: http://www.makeawillcanada.ca/truth-about-probate/.
Avoiding disagreements with beneficiaries over legal fees is important, not only for the administration of the estate but also as a matter of business – a solicitor would not wish to be seen as unfairly charging excessive fees. The way to avoid such allegation is through accurate docketing and providing a paper trail to justify actions taken – including a decision to incur professional fees in addition to any compensation for estate trustee work.
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With his election victory in the not too distant past, President-elect Donald Trump is receiving extensive coverage in the media. Although the issues following him vary widely, as we at Hull & Hull LLP are estates lawyers, our focus is on the effect the President-elect is having in the estates community.
US Estate Tax
As previously blogged by Hull & Hull LLP, the President-elect is considering abolishing estate tax in the United States altogether. This is a departure from the current US model which sees married couples exempt for the first $10.9 million in their estate, with any surplus amount being taxed at 40%. In relation to this current model, recent polls suggest that in 2015 only 10,800 estate returns were filed with about half of those being taxable.
No date has been set for the anticipated repeal.
As well, the President-elect seeks to change capital gains owing at death such that if capital gains are held until death and valued under $10 million, they will not be taxed. Apparently, the rationale is to support small businesses and family farms.
As a result of this change, it is predicted that beneficiaries of large estates will be able to avoid paying capital gains on the inherited asset if they do not sell what they inherit. They can wait to pay the tax when there is an opportune time to do so. Otherwise, those beneficiaries who are in ready need of money, will have to sell the asset, thereby triggering the tax owing.
As a result of the changes to estates and capital gains tax, pundits predict the dawn of dynastic wealth (i.e. monetary inheritance that is passed on to generations that didn’t earn it) in the United States of America.
Now, given what we have learned about the President-elect’s platform regarding estate tax and capital gains tax, consider meeting with a professional advisor to ensure your estate plan is up to date.
Find this topic interesting? Please also consider these related Hull & Hull LLP Blogs:
- Blind Trusts – Who Controls Donald Trump’s Assets While President?
- Estate Issues for Americans to Consider Before Moving North
- S. Inheritance Tax Deductions for Surviving Spouses
What happens if an individual dies intestate, and upon application for a Certificate of Appointment of Estate Trustee Without a Will, a Not Clear Certificate is returned to the applying party?
Pursuant to Rule 74.12 of the Rules of Civil Procedure:
(1) A certificate of appointment of estate trustee shall not be issued until the court has received from the Estate Registrar,
(d) on an application where there is no will, a certificate that no will or codicil has been deposited in the Superior Court of Justice.
A will being deposited in the Superior Court of Justice does not necessarily mean that the will belongs to the deceased individual. Therefore, while one may receive a Not Clear Certificate (“Certificate”) from the Estate Registrar for Ontario, it does not guarantee that a will exists in the deceased’s name. Rather, the Certificate creates the need for the applicant to take extra steps to ensure that the wills that are deposited with the Superior Court of Justice are not wills that belong to the deceased.
What Steps Should You Take?
A Certificate sent by the Estate Registrar for Ontario will contain a list of different deposit dates and court file numbers, corresponding to wills that are already deposited with the Superior Court of Justice. The listed wills on deposit will all have names similar to that of the deceased individual.
Upon receipt of the Certificate, it is the applicant’s or their lawyer’s responsibility to track down each of the deposited wills, in order to prove that they do not belong to the deceased. This involves attending the Registrar of the Court where the will has been
deposited. In some circumstances, faxing the Certificate will suffice. The Registrar will then deliver to the applicant a photocopy of the Envelope for Will on Deposit. This will allow the applicant to make the necessary investigation to determine that the will on deposit is not the will of the deceased. The Envelope for Will on Deposit contains the name of testator, the testator’s address, the name of the executor, the executor’s address, and the date the will was deposited for safe keeping.
Once the applicant gathers all of the Envelopes for Will on Deposit, the applicant must go through the envelopes and ensure they do not belong to the deceased. The applicant must then prepare an Affidavit stating that each Envelope for Will on Deposit does not belong to the deceased. The Affidavit should be filed at the Court, along with the Certificate. Once the Court is satisfied the deposited wills do not belong to the deceased, a Certificate of Appointment of Estate Trustee Without a Will should be issued. If the will does, in fact, belong to the deceased, different steps will need to be taken in order to obtain a Certificate of Appointment of Estate Trustee With a Will.
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Issues involving estates with international aspects are on the rise. Technological advances over the last century have resulted in increased mobility and connectivity, such that people are now choosing to invest, live, work, study or retire abroad. As a result, it is becoming increasingly common for people to pass away with assets, such as bank accounts, investments or real estate, in foreign jurisdictions.
What happens when an individual dies with assets located in Ontario but is domiciled in another jurisdiction?
Attaining the authority to deal with assets located in Ontario can be puzzling for a foreign personal representative charged with the task of administering these assets.
Common law has traditionally distinguished between moveable property (personal property) and immoveable property (land or interests in land). Moveable assets are typically governed by the law where the deceased was domiciled, whereas immoveable assets are typically governed by the law where the land is situated.
However, in Ontario, a grant of probate is typically required in order for a personal representative to establish his or her authority to deal with assets located in Ontario. Banks and land titles offices generally require a grant of probate before they will release or transfer the assets. This position is the same whether or not a grant has been obtained from a court in some other jurisdiction.
It is possible to have a foreign grant recognized in Ontario, in lieu of obtaining probate in Ontario. Depending on the size of the worldwide estate, this may be the better option, as tax is typically levied on the value of the worldwide assets with a grant of probate in Ontario. If seeking recognition of a foreign grant in Ontario, estate administration tax will likely only be levied on the value of the assets in Ontario.
Where the original grant was made in a Province or Territory of Canada or a country that is a member of the Commonwealth, an Application may be made for Confirmation by Resealing of Appointment of Estate Trustee. The procedure is the same whether the deceased died with or without a Will. The requirements for a Confirmation by Resealing are set out in Rule 74.08 of the Ontario Rules of Civil Procedure (the “Rules”).
Where the original grant was made in a country that is not a member of the Commonwealth and the deceased died with a Will an Application may be made for a Certificate of Ancillary Appointment of Estate Trustee With a Will. The requirements for a Certificate of Ancillary Appointment are set out in Rule 74.09 of the Rules.
Where the original grant was obtained in foreign jurisdiction and the deceased died without a Will, an Application may be made for a Certificate of Appointment of Foreign Estate Trustee’s Nominee as Estate Trustee Without a Will. The requirements of this Application are set out in Rule 74.05.1 of the Rules.
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Given the intrigue and extensive coverage that the current US election has had north of the border, it is only fitting that we dedicate today’s Hull & Hull Blog to reviewing the position taken by Clinton and Trump with respect to changes to estate tax.
A recent article in Forbes explains that current US laws exempt estates worth $5.45 million or less from paying estate tax. Estates valued higher pay 40% tax.
Hillary Clinton seeks to increase the taxes owing by the wealthiest from 45% to 65% based on the value of the estate, apparently the highest it’s been since 1981. Specifically, estates over $10 million would be taxed at 50%, those over $50 million at 55%, and those exceeding $500 million (for a single person) at 65% As well, Clinton also seeks to lower the exemption for estates valued at $5.45 million to $3.5 million.
Trump, on the other hand, seeks to eliminate the estate tax altogether.
According to the Wall Street Journal, the Republicans see the tax as “a patently unfair confiscation of wealth that punishes family-owned business”, while the Democrats view it as “a levelling tool necessary to combat concentration of wealth”.
In Ontario, while there is no inheritance tax, estate administration tax is charged on the total value of a deceased’s estate. Subject to certain exceptions, this includes the following assets: real estate; bank accounts; investments; vehicles and vessels; all property held in another person’s name; and, all other property, wherever situated, including goods, intangible property, business interests, and insurance proceeds.
As discussed in prior Hull & Hull LLP blogs, new provisions came into force on January 1, 2015, which requires payment of $5.00 for each $1,000, or part thereof, for the first $50,000 and $15 for each $1,000, or part thereof, of the value of the estate exceeding $50,000. There is no estate administration tax payable if the value of the estate is $1,000 or less.
A recent decision of the Supreme Court of Nova Scotia considers the issue of which individuals may qualify as persons having an interest in an estate.
Kenny v. Kenny Estate, 2016 NSSC 214 (CanLII), featured a situation in which the deceased, a father of two, had executed a new will after his wife and son had died. The deceased’s last will and testament named his daughter as sole residuary beneficiary. His prior will named both children (or their surviving issue) as alternate beneficiaries in the event that his wife predeceased him. The granddaughter of the testator, being the daughter of the predeceasing son, sought to have the will proved in solemn form as a “person interested in the estate”.
The application was heard within the context of Nova Scotia’s Probate Act and the related procedure and regulations. The Probate Act refers to the requirement to prove a will in solemn form on application by an interested person seeking this relief.
In determining that the granddaughter qualified as an interested person and had standing to bring such an application, the Court considered the following facts:
- The granddaughter would have benefitted as an alternate residuary beneficiary under a prior will (as a result of her grandmother’s death and her father’s death before that of her grandfather);
- The inclusion of grandchildren as issue is consistent with the jurisprudence and
the definition of the word used in Nova Scotia’s Intestate Succession Act;
- The granddaughter was a lineal descendant of the testator, and, accordingly, qualified as his “issue”.
In Ontario, an “interested person” who objects to a will and seeks to have it proven in solemn form can, similarly, request this relief pursuant to Rule 75.01 of our Rules of Civil Procedure. However, the Ontario Court of Appeal recently confirmed that the right of an interested person to have a will proved in solemn form is not absolute. An interested person may request proof in solemn form but cannot require it, as it is in the discretion of the Court alone to determine whether the testamentary instrument ought to be proved and, if so, the manner in which this is to be done.
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In Ontario, it is trite law that an estate trustee of a testate estate derives his or her powers from the Will of the deceased. Accordingly, unlike an intestate estate, it is not always necessary for an estate trustee to obtain a Certificate of Appointment of Estate Trustee with a Will (“probate”) in order to administer an estate.
However, in certain matters it is necessary for an estate trustee to obtain probate before being able to represent the estate, regardless of whether there is a valid Will. The 2000 decision of Justice Haley in Carmichael Estate (re) succinctly sets out the three instances where probate is required:
- Third parties dealing with the executor may require probate in order to accept the authority of the Will. Justice Haley provides the example of a debtor who wishes to ensure that the proper person is being paid in order to satisfactorily discharge the debt.
- Proceedings where the executor represents the estate as plaintiff or as defendant. Here, Justice Haley notes that the Court will require probate in order to satisfy an evidentiary matter pursuant to section 49 of the Evidence Act.
- Where a foreign estate trustee intends to establish his rights in Ontario, letters probate must be resealed (referred to as ancillary letters probate).
In Re Carmichael Estate, the respondents sought to include a fourth category requiring probate – the removal of an executor under section 37(1) of the Trustee Act. The Court held, however, that an applicant is free to bring a removal application regardless of whether probate has been granted and whether the estate trustee has acted in the administration.
Re Carmichael Estate a decision well worth reading for all history buffs given Justice Haley’s excellent historical analysis of the English common law Courts relating to probate and estates from the 11th century onwards.