The Ontario Government’s recent Bill 173 (the Budget Bill) deals with, amongst many other things, proposed amendments to Estate Administration Tax Act, 1998 (Schedule 14).
Estate Administration Tax is applied to the value of an estate when the estate’s representative applies to the court for a certificate of appointment of estate trustee (often referred to as probate). Currently, court staff of the Ministry of the Attorney General administer the tax. Bill 173 proposes amendments to the Estate Administration Tax Act to enhance, it has been said, compliance by integrating the administration of this tax with audit and verification functions at the Ministry of Revenue, starting January 1, 2013.
George Steinbrenner, owner of the New York Yankees, passed away yesterday. During his 37-year ownership, the flagship franchise won 7 World Series Titles. Steinbrenner bought the Yankees with a group of investors for $10 million from CBS in 1973. His personal investment was $160,000, which has grown to an estimated $880 million under his ownership and management.
Because of the timing of his death, George Steinbrenner’s estate (estimated by Forbes at US$1.15 billion) could escape the U.S. federal estates tax. Steinbrenner died during a temporary 1-year lapse period – the tax lapsed at the beginning of 2010, and could not be revived in time to apply to the year 2010. At 55% on estates worth $3.5 million or more, the straight tax hit would have been about $600 million.
Of course, his estate’s exposure to the estates tax would depend on his estate planning, as noted in this Wall Street Journal article. But Steinbrenner’s death is free of the 55% estates tax, unlike the death of Chicago Cubs owner P.K. Wrigley, whose family had to sell that franchise to fund the tax liability on his death in 1977. That’s fortunate, because according to the Wall Street Journal, the franchise is 95% leveraged in debt to finance the construction of the new Yankee Stadium.
Steinbrenner’s heirs are his wife and children, and the franchise will be apparently be spared succession issues. Steinbrenner’s sons have been managing the franchise since 2007 according to the New York Times. Steinbrenner’s succession plan, which he openly discussed in 2003, appears to be succeeding as with everything else he did.
Have a great day,
Christopher M.B. Graham – Click here for more information on Chris Graham.
Yesterday I wrote about Edward Kennedy – I began to wonder about the tax implications on his estate.
Assuming he held $75 million in assets, his estate would have been taxed at a rate of 45% and the bill owing would be $33,750,000. But this is unlikely because much of his wealth was held by trusts which, in Ontario, are separate taxable entities.
My colleague, Sarah Fitzpatrick wrote in July 2008 about the upcoming changes to the U.S. tax law. That time is four months away. Congress must act soon; if it does not, taxes on nearly everyone will soar under a plan enacted in 2001 called the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) which provides that in 2011 the tax law that had been in effect in 2000 will reappear.
The estate tax is set to vanish for a year if nothing happens before the end of 2009 as the EGTRRA sunsets in 2010. In 2011, an effective rate of 55% on estates would come into effect.
Only a small number of individuals pay the estate tax each year. In 2007, there were 36,458 estate tax filers – out of 235 million total tax filers that same year in the United States. . Smaller estates (under $3.5 million) make up the bulk of filers – over 60 percent in years 2002-2007. Large estates (over $10 million), however contributed between 18 and 30 percent of the total revenue in the same time frame.
During the 2008 campaign, President Barack Obama supported permanent extension of the 2009 law – effectively a permanent 45 percent top rate with $3.5 million exemption per individual ($7 million for couples).
Either side of the political spectrum will present different numbers, but what seems certain is that if there is no legislative action in the U.S. in the next few months, 2010 will be a good year for estates. My bet is that the large loophole will be filled quickly, especially as the U.S. operates with a large deficit.
Thank you for reading. Please remember that Hull & Hull is hosting another breakfast seminar tomorrow morning.
Enjoy your Wednesday.
Jonathan Morse – Click here for more information on Jonathan Morse.
The 2009 federal Budget contains a few items relevant to Estates, particularly with respect to Registered Retirement Savings Plans (“RRSPs”).
For a thorough review please see the 343-page document. A Bloc Quebecois amendment to the Budget yesterday evening was defeated; Opposition Party amendments have yet to occur. Budget speech to approval of the Budget motion could take up to four days.
While there are benefits for first-time home buyers in the Budget, and a host of infrastructure investments, not everyone is happy. Other media view the bad-time Budget as possibly providing the boost we need.
Regarding Estates, the Budget proposes that certain losses now be applied against terminal income – see page 318 of the Budget. The fair market value of investments held in an RRSP at the time of an RRSP annuitant’s death is generally included in the deceased’s income for the year of death. A subsequent increase in the value of the RRSP investments is generally included in the income of the RRSP beneficiaries upon distribution.
Similar rules apply in the case of Registered Retirement Income Funds (RRIFs).
There is, however, no existing income tax provision to recognize a decrease in the value of RRSP or RRIF investments that occurs after the annuitant’s death and before they are distributed to beneficiaries.
Budget 2009 proposes to allow, upon the final distribution of property from a deceased annuitant’s RRSP or RRIF, the amount of post-death decreases in value of the RRSP or RRIF to be carried back and deducted against the year-of-death RRSP/RRIF income inclusion. The amount that may be carried back will generally be calculated as the difference between the amount in respect of the RRSP or RRIF included in the income of the annuitant as a result of his or her death and the total of all amounts paid out of the RRSP or RRIF after the death of the annuitant.
Assuming the Budget motion passes, this measure will apply in respect of deceased annuitants’ RRSPs or RRIFs where the final distribution from the RRSP or RRIF occurs after 2008.
This change, especially in this uncertain economy, might help to make a weak financial situation a bit more palatable.
Thank you for reading our blogs this week. Enjoy your weekend.
Cases for Increasing and Decreasing Compensation – Hull on Estates and Succession Planning podcast #122
Listen to Cases for Increasing and Decreasing Compensation.
This week on Hull on Estates and Succession Planning, Ian and Suzana discuss cases for increasing and decreasing compensation.
Listen to Issues in Estate Administration: Tax Filing.
This week on Hull on Estate and Succession Planning, Ian and Suzana discuss tax issues surrounding the administration of an estate.
Listen to The Business of Being an Estate Trustee.
This week on Hull on Estate and Succession Planning, Ian and Suzana discuss the business side of being an Estate Trustee and talk about what to do with assets.
Listen to Getting Probate
This week on Hull on Estate and Succession Planning, Ian and Suzana discuss probate – what it is and when you need it.
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.
Listen to The Core Issues Concerning Estate Taxes