Today on Hull on Estates, Paul Trudelle and Doreen So discuss a selection of the Top Estate, Trust and Capacity Cases of 2015: A Year in Review
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Now that the 2016 year has begun, there are several amendments to the Income Tax Act, R.S.C., 1985, c. 1 (5th Supp) (the “ITA”) that have come into force. Some of these amendments have been discussed on this blog before. Among these amendments is the introduction of the “qualified disability trust” (the “QDT”).
The requirements for a QDT can be found in s. 122(3) of the ITA, and are as follows:
i. At the end of the trust year, a QDT must be a testamentary trust that arose on and as a consequence of an individual’s death;
ii. The trust must be resident in Canada for the trust year; and
iii. The trust and the named beneficiary or beneficiaries must have made a joint election for the trust to be a QDT.
Section 122(3) now also includes requirements for the beneficiary of a QDT:
i. Section 118.3(1)(a) to (b) must apply to the beneficiary for the individual’s taxation year in which the trust year ends, meaning that the beneficiary must be eligible for the disability tax credit; and
ii. The beneficiary can only jointly elect for one trust to be a QDT.
If a trust meets the requirements for a QDT, it will not be subject to the new rules with respect to flat top rate taxation that are now applicable to testamentary trusts. This is an important qualification, because prior to the amendments that came into force January 1, 2016, all testamentary trusts were subject to graduated rates of taxation. Now, however, trusts will only have the benefit of the graduated rates for the first 36 months following the death of a testator, during which period they will be called “Graduated Rate Estates” (“GREs”). Therefore, the QDT has significant benefits with respect to taxation of trusts.
As noted above, however, the requirements for a QDT are far from simple. With respect to the disability tax credit, there are particular requirements and limitations for eligibility. The assessment of whether a particular individual will be eligible for the disability tax credit is done by a doctor, not a financial advisor, and it can be difficult to predict whether or not someone will qualify.
There are also some elements of the QDT which may raise planning challenges, including the limit of one QDT per beneficiary. For example, if the grandparents of a disabled grandchild have chosen to create a testamentary trust for the benefit of their grandchild, only one grandparent is able to have the trust qualify as a QDT. Furthermore, the joint election for the trust to be a QDT must be made each year, and each year the beneficiary must qualify for the disability tax credit. As such, the status of the trust may change from year to year, and must accordingly adapt to the changing application of the tax rules.
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In a recent Ontario Court of Appeal decision, Holgate v Sheehan Estate, 2015 ONCA 717, the court was asked to consider an appeal from a motion for determination of an issue under Rule 21.01(1)(a) of the Rules of Civil Procedure. The Rule 21 motion arose in the context of a trial with respect to the interpretation of the will and codicil of John Holgate, and particularly the meaning of the word “use”. The appeal also dealt with the trial judge’s jurisdiction to hear the mid-trial Rule 21 motion, but this blog will deal with the former issue.
Mr. Holgate had passed away and was survived by two sons from his first marriage (the “sons”) and his second wife, (“Mrs. Holgate”). Mr. Holgate’s will and codicil provided for a life interest in two trusts to Mrs. Holgate. Following Mrs. Holgate’s death, Mr. Holgate’s children were entitled to the remainder of the two trusts. The wording of the two trusts provided that the trust assets were to be held for “the sole use and benefit of my wife MAY HOLGATE during her lifetime”.
The sons brought an action against their father’s estate, Mrs. Holgate’s estate and Mrs. Holgate’s daughter personally, claiming that Mrs. Holgate’s life interest allowed her to use the money but not save it. They alleged that Mrs. Holgate had not only used trust assets, but had also saved money, thereby depleting the capital of the estate to their detriment and contrary to their father’s intention.
Three days into the trial, the trial judge invited counsel to bring a mid-trial motion either for determination of an issue or for directions in order to determine this critical issue with respect to the interpretation of the will and codicil, namely the meaning of the term “use”. Counsel agreed to bring a Rule 21 motion and asked whether the wording of the will and codicil precluded Mrs. Holgate from accumulating wealth from the trusts in her own name.
The trial judge concluded that:
- nothing in the will or codicil prevented Mrs. Holgate from saving and accumulating wealth;
- the language of the will came as close as possible to conferring an absolute gift on Mrs. Holgate; and
- neither of the trusts included any limitations on the use of the assets by Mrs. Holgate.
On appeal by the sons, the Court of Appeal agreed with the trial judge’s interpretation, that the words and phrases used in the trusts indicate a clear intention on Mr. Holgate’s part to allow his wife unrestricted access to the funds. They also cited Dice v Dice Estate, 2012 ONCA 469, which held that “[t]he golden rule in interpreting wills is to give effect to the testator’s intention as ascertained from the language that was used”.
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This week on Hull on Estates, Natalia Angelini and Jonathon Kappy discuss issues involving minors and incapables. Specifically, they discuss accepting payment into court for the benefit of individuals under the age of majority as well as various statutes dealing with accepting payment into court.
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This week on Hull on Estates, Paul Trudelle and Holly LeValliant discuss beneficiary designations when a will is revoked. More specifically, they discuss a recent decision made by the Ontario Superior Court of Justice: Petch v. Kuivila, 2012 ONSC 6131 (CanLII).
Click here for more information on Holly LeValliant.
The recent Court of Appeal decision in Schwartz v. Schwartz, 2012 ONCA 239 (CanLII) discusses the issue of resulting trusts and their effect on transfers of property.
In Schwartz, Mr. and Mrs. Schwartz transferred title to their matrimonial home to Mrs. Schwartz alone in 2000. In 2006, title was transferred to Mr. Schwatz alone. In divorce proceedings, the court found that Mr. Schwartz was holding title in the matrimonial home in trust for Mrs. Schwartz. A creditor of Mr. Schwartz’s appealed
The Court of Appeal addressed the issue of resulting trusts. The Court cited Kerr v. Baranow, 2011 SCC 10 (CanLII) and its reasoning that a resulting trust may arise in the domestic context where there has been a gratuitous transfer of property. In such a case, the courts may find that a resulting trust exists, with the effect of returning the property to the person who gave it. “Thus, the beneficial interest ‘results’ (jumps back) to the true owner. When faced with such an issue, the court must consider evidence of the actual intention of the transferor. Although an intention to gift property trumps the presumption of resulting trust, the intention at the time of the transfer is a question of fact.
In conclusion, the Court of Appeal held that it was open to the motion judge to find that Ms. Schwartz did not intend to gift her interest in the property and therefore had an interest in the property, but remitted the matter to the motion judge to determine the extent of the interest.
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Paul Trudelle – Click here for more information on Paul Trudelle.
This week, Saman Jaffery and David Morgan Smith discuss the recent Supreme Court decision in Fundy Settlement v. Canada (a.k.a. St. Michael Trust Corp. or Garron Family Trust) which confirms that the “central management and control” test used to determine the residence of corporations also applies to the determination of the residence of trusts for tax purposes .
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Saman Jaffery – Click here for more information on Saman Jaffery.
David Morgan Smith – Click here for more information David Smith.
We hear a lot about fiduciary duty in the practice of wills and estates. But what is it exactly? According to this definition in Irwin law’s online dictionary, a fiduciary is “a person occupying a position of trust vis-à-vis another person”.
In the recent case of Hooper (Estate) v. Hooper, 2011 ONSC 4140, the court discusses the concept of fiduciary duty. In Hooper, the estate trustee, who did not defend the proceedings against him, placed himself in a fiduciary relationship with respect to not only the deceased, but also in relation to the other named beneficiaries.
The court commented that when a person in such a fiduciary position fails to pass accounts or otherwise account for his or her actions, he or she can be required to repay the amount unaccounted for to the estate. Breach of such a special relationship gives rise to wide array of equitable remedies. Such equitable remedies are always subject to the discretion of the court, and are designed to address not only fairness between the parties, but also the public concern about the maintenance of the integrity of fiduciary relationships.
In exercising its equitable discretion, the court is concerned not only with compensating a wronged plaintiff, but also with upholding the obligations of good faith and loyalty, which are the cornerstone of the concept of fiduciary duty.
The freedom of the fiduciary is limited by the nature of the obligation he or she undertakes, an obligation which “betokens loyalty, good faith and avoidance of a conflict of duty in self interest.” In short, equity is concerned not only to compensate the plaintiff, but to enforce the trust which is at its heart.
Fiduciary duties are clearly those which should never be entered into lightly or on an uninformed basis.
Sharon Davis – Click here for more information on Sharon Davis.
Last week, Globe and Mail columnist Tim Cestnick wrote on cottage ownership through a trust.
This week, Tim follows up his article with “Seven hints for holding a cottage in trust”.
The hints relate to:
1. Dealing with the tax hit upon the transfer to the trust.
2. The taxation of the taxable benefit of using the cottage.
3. The effect of the 21 year deemed distribution rule.
4. U.S. estate taxes.
5. The payment or avoidance of Land Transfer Taxes.
6. The payment or avoidance of HST.
7. Extra requirements in the event that the cottage needs to be mortgaged.
Both articles are worth a read by anyone considering ownership of a cottage through a trust. They highlight the benefits of such ownership, while also raising the myriad of issues and complications that can arise with such a vehicle. Clearly, good advice is needed by anyone considering the use of a trust for cottage ownership
Also, see our blogs and podcasts for more information relating to cottage ownership and succession. Also, just last week, our Ian Hull spoke on BNN about strategies to keep a cottage property in the family.
Clearly, this topic is as hot as our recent taste of summer weather.
Have a great weekend.
Paul E. Trudelle – Click here for more information on Paul Trudelle.
I recently read an Ontario decision involving a will challenge and the court granted summary judgment to the estate trustee on the issue that the Testator had the requisite testamentary capacity to execute her Last Will and Testament.
In Quinlan v. Caron, the Deceased executed her Last Will and Testament on May 18, 2007 (the “Will”) and she subsequently died on September 7, 2008. Two days before executing the Will, the Deceased underwent a capacity assessment that was recorded on video. The doctor who conducted the capacity assessment concluded that the Deceased had the requisite capacity to create a new Will.
The daughter of the Deceased commenced a Will Challenge alleging that the Deceased lacked the mental capacity to execute the Will and undue influence. The Estate Trustee is the son of the Deceased and brought a motion for summary judgment against his sister, arguing that there were no genuine issues requiring a trial as his sister’s claim was not supported by any evidence.
The Honourable Justice Tuck put a lot of weight on the capacity assessment and granted summary judgment to the Estate Trustee on the issue of the Deceased’s capacity; however Justice Tuck dismissed the Estate Trustee’s motion for summary judgment on the issue of undue influence. In the decision, Justice Tuck held that “matters of credibility requiring resolution on a case of conflicting evidence ought to go to trial” and he rationalized that there was conflicting evidence in this case, which could suggest that the Deceased was unduly influenced.
Thank you for reading and have a great weekend,
Rick Bickhram – Click here for more information on Rick Bickhram.