Previous entries in our blog have covered inheritance taxes in the United States and other jurisdictions and President Trump’s proposed elimination of the tax altogether. Recent news coverage has zeroed in on how the family of the American president has allegedly evaded over half a billion dollars in tax liabilities that should have been paid on the transfer of significant family wealth.
Certain exceptions apply, but inheritance tax (more frequently referred to as “death tax” by President Trump himself) of 40% typically applies to assets of American estates beyond an initial value of $11.18 million. This means that estates up to this size are exempt from inheritance taxes, while the wealthy engage in complex planning strategies to minimize tax liabilities triggered by death (some of which mirror those used by Canadians in an effort to avoid payment of estate administration taxes on assets administered under a probated will).
Despite Trump’s previous statements that he has independently earned his fortune without reliance on prior family wealth, The New York Times reports that he and his siblings together received over $1 billion from their parents’ estates and that $550 million (55% under the old inheritance tax regime) ought to have been paid in taxes. However, in 1999-2004, during which years the estates of Fred and Mary Trump were administered, a rate of closer to 5% was paid in taxes. Whether the tax-minimizing methods used by the Trump family were legitimate or questionable remains unclear:
The line between legal tax avoidance and illegal tax evasion is often murky, and it is constantly being stretched by inventive tax lawyers. There is no shortage of clever tax avoidance tricks that have been blessed by either the courts or the I.R.S. itself. The richest Americans almost never pay anything close to full freight. But tax experts briefed on The Times’s findings said the Trumps appeared to have done more than exploit legal loopholes.
Sometimes, the line between legitimate tax-minimizing planning strategies and outright tax evasion can appear thin. It is important to avoid improper strategies that put the assets of an estate and their intended distribution at risk, and which may ultimately serve only to complicate and delay the administration of the estate.
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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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My other two blog posts this week have focused on the utility of model legislation that has been introduced in Canada and the United States to address the issue of fiduciary access to digital assets, and some of the primary differences between the uniform acts of these two jurisdictions.
Today, I take the opportunity to highlight the prevalence of digital assets through the use of some interesting (and somewhat surprising) statistics:
- 99% of North Americans use at least one personal online tool;
- A 2013 study by McAfee suggests that Canadians value their digital assets at an average of more than $32,000.00. Since 2013, the prevalence of digital assets has increased significantly;
- Worldwide, Bitcoins are valued at almost $22 billion, with over $2 million in Bitcoins exchanged every day;
- As many of our readers already know, many Canadians (estimated to be more than 60%) do not have a Last Will and Testament. Of those who do have a Will, 57% of North Americans aged 45 and older have not included provisions that address access to digital assets as part of their formal estate plan. Such provisions may be required in order for an estate trustee to gain access to digital assets, absent the enactment of legislation permitting same or a court order granting access.
Our blog has previously covered some of the common issues resulting from the inattention to digital estate planning, which can arise regardless of the financial value of the assets in dispute.
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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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Later this week, House Bill 432 will come into effect in Ohio to update state estate and trust administration law. One of the most notable updates is the adoption of the Revised Uniform Fiduciary Access to Digital Assets Act, along with corresponding updates to Ohio’s Power of Attorney Act.
The American Revised Uniform Fiduciary Access to Digital Assets Act is intended to formalize the authority of attorneys for property and estate trustees to obtain access to digital assets for deceased or incapable users. Prior to its implementation in American states (and in other jurisdictions in which comparable legislation has not yet been introduced), the intervention of the courts has often been required to grant fiduciaries with access to information and assets stored electronically. There continues to be some debate as to whether an attorney for property or estate trustee, authorized to administer tangible property, also has the authority to manage digital assets without legislation and/or terms of the Power of Attorney or Will explicitly extending this authority.
Interestingly, the Revised Uniform Act has been endorsed by Google and by Facebook, both platforms on which a great deal of the world’s digital assets are stored. In 2016, 13 states introduced the Revised Uniform Fiduciary Access to Digital Assets Act. With the introduction or enactment of the Revised Act in another 24 states since the beginning of 2017 alone, it is clear that state legislatures and online service providers alike agree that amendments to the law in recognition of the growth of technology is required to clarify the state of the law of digital assets and fiduciaries.
The Uniform Law Conference of Canada introduced the Uniform Access to Digital Assets by Fiduciaries Act (2016) this past summer. While the uniform acts of Canada and the United States share a number of similarities, there are several important distinctions, which will be highlighted in Thursday’s blog post.
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Reaching the age of retirement and becoming eligible for government-funded pension benefits is a cause of celebration for many individuals. However, for Americans who wish to exercise their Second-Amendment right to bear firearms, turning 65 may not be as happy an occasion as it once was.
American citizens become eligible for full Social Security benefits upon reaching the age of 65. President Obama has recently announced plans to limit the ability of recipients of Social Security benefits to obtain and retain possession of guns.
If the proposed change is implemented, background checks conducted when individuals purchase guns will include a review of Social Security records. Further, firearm registries may be reviewed to ensure that certain recipients of Social Security in possession of guns are identified and their weapons are confiscated. The change in policy also impacts individuals who suffer from mental illnesses, who also receive social benefits.
President Obama has stated that the intention is to target individuals who fall under the federal firearm laws description of having “marked subnormal intelligence, or mental illness, incompetency, condition, or disease.” However, approximately 4.2 million American adults receive benefits through Social Security that are managed by another person. These people will be unable to purchase or possess firearms, despite the fact that not all of the individuals will fit into the target group of those whose access to guns is considered unsafe.
The issue in the proposed administrative change is that a person may receive assistance from another person in the administration of his or her affairs without having compromised mental capacities. Critics of President Obama’s plan insist that seniors are a vulnerable group of society who are most likely in need of guns to protect themselves due to age-related decline in physical strength and increased frailty. The inability to possess firearms is suggested to improperly compromise their constitutional right on the basis of age.
While this development in unlikely to affect the lives of Canadians, it is an example of the infringement of rights of the basis of age, whether or not justified by increased rates of cognitive decline, and it will be interesting to see whether the proposal withstands further review.
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