Tag: real estate
On March 30, 2020, Noah Weisberg blogged about the estate trustee’s duty to invest during COVID-19, a time when market fluctuations have become the norm. Today, I consider how pandemic-induced changes in the housing market may impact an estate trustee’s management of real property held by an estate.
Real properties – including primary residences, cottages, and vacation properties – are often some of the largest assets an estate trustee will deal with during the course of their administration of an estate. Unless otherwise stated in the deceased’s will, the estate trustee has a fiduciary duty to sell the estate’s real property for its fair market value and is expected to do so in a timely manner.
However, the exact timing for the market and sale of real property can depend on many factors. It is common for a will to grant an estate trustee the discretion to choose whether to sell or retain assets. As it pertains to real property, this power allows the estate trustee to hold onto a property until such time as they can achieve the best possible sale price on behalf of the beneficiaries. At the same time, the estate trustee needs to be mindful of the costs incurred by the estate in having to maintain the property. Beneficiaries of the estate may also put pressure on an estate trustee to sell the property and convert it to money sooner rather than later.
Like most industries, the real estate market has been impacted by COVID-19. An estate trustee should be attentive to whether recent changes in the housing market make it an ideal or inopportune time to market a particular property for sale, while also bearing in mind the factors described above.
If an estate trustee decides to list a property for sale in today’s uncertain housing market, there are a few things they can do to help protect themselves against future claims from beneficiaries. First, the estate trustee should have the property appraised for its fair market value by a professional appraiser who is an independent third party. For added protection, the estate trustee may want to have the beneficiaries sign off on the property’s price. The estate trustee should also make an effort to keep the beneficiaries apprised of each step of the sale process. Lastly, the estate trustee should take care to keep detailed records of all advice received and steps taken in the event that they need to justify their actions at a later date.
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Today on Hull on Estates, Jonathon Kappy and Umair Abdul Qadir discuss vacant possession of real property belonging to an estate and the recent decision in Filippelli Estate v Filippelli, 2017 ONSC 4923.
You can read more about this decision on our blog here.
Should you have any questions, please email us at email@example.com or leave a comment on our blog.
On October 3, 2016, the Minister of Finance announced changes to the Income Tax Act. The purpose of these changes is to “improve tax fairness by closing loopholes surrounding capital gains on the sale of a principal residence.”
Although we have previously blogged on the proposed new reporting requirements, there are certain other proposals that merit further discussion.
Limitation Period and Tracing
One change concerns the current limitation period and tracing dispositions of principal residences. Currently, the rules are formulated so that the Canada Revenue Agency (“CRA”) may be barred from assessing or re-assessing an individual, including a trust, for taxation years that end on the third year after the date the CRA issued a Notice of Assessment.
Under the new rule, there will be no limitation period for a taxpayer’s disposition of a principal residence if it is not reported, which may allow the CRA to assess the disposition at any time.
Principal Residence Owned in a Trust
The changes also restrict when a trust may designate a property as a principal residence.
To qualify under the new rules, the beneficiary of the trust must personally reside in the proposed property. Furthermore, only three types of trust may designate a principal residence:
- Certain joint spousal and alter ego trusts for the exclusive benefit of the settlor and settlor’s spouse or common-law partner;
- Testamentary “qualified disability trusts” for the benefit of the child or a current or former spouse or common law partner of the settlor; and
- A trust for the benefit of the settlor’s minor child, where the child’s parents died in the preceding year or years.
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Proposed Changes to the Land Transfer Tax Act
The Ontario government introduced Bill 70, Building Ontario Up for Everyone Act (Budget Measures), 2016 (“Bill 70”) for first reading on November 16, 2016. It is currently in its second reading. Bill 70 is an omnibus act that includes significant changes to the Land Transfer Tax Act (LTTA). This change applies only to the Ontario legislation, and does not affect Toronto’s Municipal Land Transfer Tax by-law, which imposes a tax on Toronto transfers in addition to the Ontario land transfer tax.
Once passed, Bill 70 will change the Land Transfer Tax (LTT) rates for commercial property transactions after January 1, 2017 for property exceeding the value of $400,000. The increased rate will not apply to single family homes. Bill 70 does include a grandfathering clause, so the new rates will not apply to agreements of purchase and sale made before November 14, 2016.
Will these changes affect estate administration?
Most simple estates, which may include properties such as a family home or a cottage, will remain unaffected by these changes. Estates with commercial properties may be affected by the increased rates.
Not all transfers of estate property attract LTT. If the real property is gifted directly to one or more beneficiaries under the terms of a will, then no land transfer tax is payable under the LTTA. Likewise, if real property is transferred to a beneficiary to satisfy an interest on an intestacy, no tax is paid pursuant to the LTTA. It is important to note that whether or not land transfer tax is payable under the LTTA, a Land Transfer Tax Affidavit must be completed.
If real property is sold to a third party for the purpose of paying debts or distributing the proceeds between one or more beneficiaries, land transfer tax must be paid under the LTTA. After January 1, 2017, the value of commercial real property over $400,000 will be taxed at 2%, up from 1.5%. If the estate is in a position to close a commercial property transaction before the year end, it may possible to avoid this rate increase.
You can read the proposed changes to the LTTA and to check on the status of Bill 70 at the Legislative Assembly of Ontario website.
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Last week, the Toronto Real Estate Board (“TREB”) released a report that Toronto home prices in the month of June jumped nearly 17% compared with the same month last year. Toronto and Vancouver real estate prices are frequently a news topic, but regardless of where you live, the home often represents the largest and most important asset of a person’s estate.
We have previously written on the rights of common law spouses under the Succession Law Reform Act. However, surviving married spouses have those rights and more. Surviving married spouses also have recourse to the Family Law Act (“FLA”). Under section 6(1) of the FLA, a surviving married spouse can file an election for equalization of net family property. In essence, a surviving married spouse is entitled to half of all the property of the marriage – regardless of who held legal title and regardless of the terms of the deceased spouse’s will.
Ontario has implemented a pecuniary (or payment) regime rather than a proprietary regime. This means that an election in Ontario does not give a married spouse a right to a particular piece of property; instead it gives the surviving spouse a right to receive (or make) a payment. One implication of this is highlighted below, but for now, it should be noted that the law affords special protection to a surviving married spouse’s interest in the matrimonial home. Section 18(1) of the FLA defines the matrimonial home as the property “ordinarily occupied by the person and his or her spouse as their family residence.”
The special protections given to the matrimonial home are numerous. For example, under section 19 of the FLA, a spouse is entitled not only to a payment but to possession of that property.Under section 26 of the FLA, if a deceased spouse owns the matrimonial home as a joint tenant with someone other than the married spouse, the joint tenancy is immediately severed and the surviving spouse is allowed to retain possession of the home, rent free, for sixty days after the other spouse’s death. In addition, even though Ontario has adopted a payment regime, a surviving spouse’s entitlement to ½ of the net value of the matrimonial home is afforded special protection, particularly against creditors.
Thibodeau v Thibodeau, 2011 ONCA 110, is a family law case involving two living spouses, but it is instructive with regard to the rights of a surviving spouse and their interest in the matrimonial home. In this case, an ex-wife obtained a court order for an equalization payment from her ex-husband. The ex-husband then declared bankruptcy. The ex-wife sought an order granting her equalization payment priority over her ex-husband’s unsecured creditors. The Court refused to grant the payee-wife priority over other unsecured creditors of the payor-husband. However, the ex-wife had already received her share of the proceeds from the sale of the matrimonial home. While the Court order did not mean that the ex-wife would not later recover the rest of the payment owed to her – as she had other avenues by which to secure her payment – the case is significant because the ex-wife’s ½ interest in the matrimonial home and rights therein were not prejudiced by her ex-husband’s bankruptcy.
While there is some uncertainty with regard to the prioritization of claims in an insolvent or bankrupt estate, it is likely that a surviving married spouse’s interest in a matrimonial home would gain similar protections in an estate’s context – which, according to the TREB, is good news for married couples who own a home in Toronto.
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The Ontario Court of Appeal’s recent decisions in Neuberger v York, 2016 ONCA 191, and Spence v BMO Trust Company, 2016 ONCA 196, have garnered a significant amount of attention. The appellate court’s recent decision in Donis v Georgopoulos, 2016 ONCA 194, would also be of interest to the estates bar.
In Donis, the Deceased made a Will distributing her Estate equally between her three children, Dimitra, Christos and Eleni. After her father passed away in 2005, Dimitra became the Deceased’s primary caregiver so that the Deceased could continue to live independently at her home (the “Home”).
Initially, the Deceased planned to change her Will to leave the Home to Dimitra. However, she ultimately decided to sell the Home to Dimitra for the amount of $100,000.00, which she intended to bequeath to her other children in a new Will.
In 2007, Dimitra and the Deceased signed a Memorandum of Agreement (the “MOA”) drafted by the Deceased’s solicitor, Mr. Shea. Under the MOA, the Deceased transferred her interest in the Home to Dimitra upon the payment of the sum of $100,000.00 from the proceeds of sale. In return, Dimitra agreed to allow the Deceased to continue to live at the Home “for the balance of her lifetime unless she is unable for health reasons to do so.”
The Deceased was fluent in Greek and Macedonian, and her lawyer communicated with the Deceased in English with Dimitra’s assistance. Although Dimitra attended meetings with the Deceased, the lawyer would confirm the Deceased’s instructions with Dimitra out of the room. The Deceased also saw a Macedonian-speaking lawyer, Mr. Petrovski, who did not review the MOA with the Deceased but did confirm that she intended to transfer the Home to Dimitra.
Upon the Deceased’s death, the agreement to transfer the Home to Dimitra reduced the inheritance of the Deceased’s other children. The Deceased’s son Christos challenged the transfer on the basis that the Deceased lacked the capacity and understanding to sign the MOA and that the Deceased was unduly influenced by Dimitra.
At trial, the trial judge held that the Deceased was mentally capable of entering into the MOA and understood the contents of the MOA. The trial judge also concluded that the Deceased’s dependence on Dimitra gave rise to a presumption of undue influence, but that Dimitra had rebutted the presumption. Christos appealed the trial judge’s decision on a number of grounds.
On the issue of undue influence, Christos argued that the advice the Deceased received from Mr. Shea was deficient and insufficient to rebut the presumption of undue influence. He asserted that Mr. Shea was in a conflict of interest because Dimitra was present at his meetings with the Deceased, and that Mr. Petrovski did not remedy this conflict because Mr. Petrovski did not explain the MOA to the Deceased. Christos also argued that Mr. Shea did not adequately explain the risks of the MOA.
In dismissing Christos’s appeal, the Court of Appeal rejected his arguments regarding the trial judge’s findings on the issue of undue influence. The Court affirmed the trial judge’s finding that Mr. Shea was not in a conflict of interest. He had been retained by the Deceased, and had a practice of confirming her instructions in Dimitra’s absence even though Dimitra was present at meetings. The legal advice provided to the Deceased ensured that she understood the nature and the risks of the inter vivos transfer.
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Umair Abdul Qadir
A report released by the Vancouver City Savings Credit Union yesterday suggests that there is a disconnect between the intentions of testators and the expectations of family members who anticipate becoming the beneficiaries of their estates.
39% of millennials living in Vancouver expect to receive an inheritance of $300,000.00 or more from their parents. However, 66% of Vancouver parents expect to leave each of their children less than $100,000.00. Among reasons for the discrepancy are increased senior debt and longer life expectancies, which both play a role in the depletion of the assets available for distribution after death.
What may compound the expectation of children living in Vancouver is the obligation in British Columbia that a testator provide a benefit for his or her surviving adult children, whether they qualify as his or her dependants or not, absent a rational and valid reason not to do so. There is no such obligation in Ontario.
With the mean price of detached houses in Vancouver of $1.83 million, testators, especially those who intend to limit bequests to their children (rather than those with smaller estates), should consider whether their estate plans provide a sufficient benefit to their children. Testators in British Columbia and elsewhere should be encouraged to consider whether estate plans reflect all of their legal and moral obligations.
The results of this report highlight the need for more effective communication between generations with respect to estate planning. While approximately 80% of seniors in British Columbia have a will, less than half have discussed the transfer of their wealth with their children. Effective communication can be the key to managing the expectations of beneficiaries and avoiding family estate disputes.
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Listen to Applying for Probate
This week on Hull on Estate and Succession Planning, Ian and Suzana talk about the applying for probate. They discuss some of the ways that estate administrators can simplify the process.
The orderly administration of a parent’s estate will often revolve around the family home. All too often, the children of the deceased parent will not see eye to eye on the best way to liquidate the home or whether the home should be liquidated at all. The situation is often compounded when one of the children resided with the parent and may have developed an enhanced emotional attachment to the home. If the home is sold, it may become a challenge to empty out the contents in a timely fashion.
Such difficulties have led some commentators to espouse the viewpoint that a family member ought not to be an executor of an estate in which the family home is the most significant estate asset. To my mind, such recommendation is a bit extreme: each family is different and while there is no certainty as to how the children will interact with one another on the death of the surviving parent, it is worth noting that the vast majority of estate administrations are not referred to litigation counsel.
As noted in a recent article in the New York Times, the difficulties that may arise in the sale of the family home are often best resolved through the advice of a good listing agent and effective communication between the executor and his or her siblings. Such issues that may arise include: the appropriate list price, how to show the home to attract the most optimum sale price, and what upgrades (if any) to engage in and whether to use estate assets for this purpose.
David M. Smith
Listen to Asset Particulars
This week on Hull on Estate and Succession Planning, Ian and Suzana talk about the importance of keeping track of asset details.