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O'Sullivan Estate Lawyers | Toronto Trust and Estate Law Blog

Keeping Things Up-To-Date

Putting estate planning documents in place can be a daunting task, but it does not end there. Estate planning is an organic process that requires ongoing attention and revision. Circumstances in your life will continue to change and your main objective is to ensure that your wishes and intentions are properly reflected in your plan and documents, both upon incapacity or death. What meets your financial and personal needs now may not do so in the future, so it is important to continue to review your documents, in particular when your circumstances change.

As we enter the summer season, and the pace eases, here are a few situations that would warrant a review of your estate planning documents:

1) Changes in the Law

Continually reviewing and updating your estate documents allows for changes to be properly addressed including any adverse tax implications for your estate. Although your goals may not have changed, ensuring that your estate is protected is important for future planning.

The New Non-Resident Speculation Tax and Estate Planning and Administration: What You Need to Know

The Ministry of Finance recently introduced a 15% tax on the purchase or acquisition of a residential property in the Greater Golden Horseshoe by individuals who are not citizens or permanent residents of Canada or by foreign corporations or taxable trustees. The new Non-Resident Speculation Tax ("NRST") is in addition to the Ontario and Toronto land transfer taxes. Although the NRST is subject to the approval of the legislature, it is currently in effect and applies to any agreements of purchase and sale entered into after April 20, 2017.

The NRST is a tax of 15% on the value of the consideration paid for a residential property. A residential property is land that contains at least one and not more than six single family residences, such as detached and semi-detached houses, townhouses and condominium units.

How does the NRST affect Estate Planning and Administration for Canadian Citizens and Permanent Residents?

The Principal Residence and Capital Gains Tax - New Rules, New Pitfalls

Most taxpayers know that when you sell an asset which has increased in value, the federal Income Tax Act provides that you will generally be liable for capital gains tax on the net increase in value, unless there is an applicable exemption. One exemption from capital gains tax is for a principal residence. In October of 2016, the federal government introduced draft legislation to amend the rules to restrict the application of the principal residence exemption. The amendments are aimed at stopping non-residents of Canada and real estate developers from unreasonably claiming the exemption. However, the amendments can also affect anyone who currently has or may wish to have a trust which holds a residence for a beneficiary, whether or not they are tax resident in Canada.

The principal residence exemption allows one family unit to designate one property as their principal residence for the purposes of accessing the principal residence exemption, as long as certain conditions are met. The exemption from capital gains tax applies to all years the property is owned plus one additional year to allow for the sale of one principal residence and the purchase of another in the same year. Under existing rules, a home held in a trust can qualify for the exemption.

Tax Reform Revealed: Will the U.S. Become the Best Next Tax Haven?

On April 26, 2017 with great fanfare the White House announced bold proposals for tax reform, the primary objective of which is to stimulate economic growth. These reforms could be a real game-changer if they succeed in creating new jobs, fueling economic expansion, and making the U.S. more competitive - and dare I say it ...making America great again.

In a nutshell, the Trump Administration principles for tax reform would among other things:

  • reduce tax brackets from 7 to 3
  • set rates at 10%, 25% and 35%
  • repeal the estate tax
  • set the top tax rate at 20% for capital gains and qualified dividends

No doubt, the White House has made tax reform a centerpiece and top priority. Key policy issues and concerns abound as to whether lost tax revenue will create gaping budgetary deficits, and as to who will really benefit from these reforms - will it be the wealthiest and top earners at the expense of middle earners who will shoulder future deficits and federal debt?

Safekeeping of Original Estate Planning Documents: Hard Copies are Hard to Replace

It is becoming more and more the "norm" in many areas of day-to-day life that in lieu of an original paper copy of a document being given to us during some form of transaction or interaction, the document is instead created and sent to us digitally. Consider for example car rental agreements, sales receipts, monthly phone bills, tickets to a concert or art exhibit, personal income tax returns, charitable donation receipts, etc. It's easy to get in the habit of receiving important documents in this manner, as well as relying on having them at our fingertips and readily available by quickly searching phones, tablets, PCs, external hard drives, cloud storage and email inbox folders, or even accessing these documents online and downloading them if and when needed.

With this flow of digital information, and the ease with which documents can be signed virtually and stored digitally, it is important to recognize and keep track of certain documents for which the original is vital and for which a digital copy is usually not an adequate substitute on its own. Original signed wills (which we will discuss in more detail in this blog post), original signed powers of attorney and original share certificates are all examples of such documents.

Multiple Taxation on Death: The Taxpayer's Nightmare

With increasing globalization of people and their assets, a growing and often hidden threat is multiple taxation on death. Different countries tax in different ways on death, and when those laws collide, the same assets can be exposed to double and even triple tax or more.

Some countries tax the deceased or the estate on death, and some tax the beneficiary. There are also different bases for charging tax, such as citizenship, domicile, residency or the location of the assets.

Most jurisdictions impose some type of death, succession or estate tax. Canada, and a few other jurisdictions (including Australia, New Zealand, and Denmark) are unique in taxing capital gains on death. And there is growing talk in the U.S. of replacing its estate tax with a capital gains regime on death similar to Canada's.

Fun in the Sun, Until the Probate Court Comes?

While this winter in Toronto has been blessedly mild, colder weather makes many of us wonder why we live in a cold climate, or at least envy those who have vacation homes in warmer climates. While a vacation home in Florida or Arizona or other southern destinations may be a wonderful thing, planning is usually necessary to prevent it from becoming a burden after death for your family and executors. As an example, directly owning a vacation home in Florida or Arizona may give rise to the onerous process to probate a will in those jurisdictions. This is in addition to any U.S. estate tax exposure your estate may face due to direct ownership of U.S. real estate.

For example, in Florida the probate process requires that your executors either be your spouse or another relative, or be a resident of Florida. Unrelated non-resident executors are not eligible to apply for a Florida probate grant. This can limit your choice of executors where a Florida probate grant is necessary. If your chosen executors are not qualified for Florida probate purposes, the Florida court can appoint another qualified person instead, including a local professional or trust company.

The Family Wealth Conversation - Too Little, Too Late?

One of the issues of increasing concern to parents is having that family wealth conversation.

With increasing affluence, the present post-war baby boom generation is confronting more so than their parents had to, the best way to approach talking with their children about financial matters, including their eventual inheritance.

While we have formal education in core subjects such as mathematics, history and English as part of the standard elementary and secondary school curriculum, financial literacy is only beginning to become part of the education system. 

No Estate Planner is an Island

A well drafted will is not worth the (stack of) paper it is written on if it fails to achieve the client's objectives. Those objectives are often defeated where an estate plan is not properly designed, implemented, or maintained.

Under the traditional approach to estate planning, the lawyer typically designs the estate plan and drafts the relevant documents. The lawyer also makes various recommendations to the client--for example, the lawyer may recommend the client obtain tax advice with respect to a potential tax liability on death and may also recommend the client obtain life insurance to fund that potential tax liability. Sometimes the lawyer follows up with the client with regard to the various recommendations, but not always. Too often the client is left to oversee various implementation and maintenance aspects of the estate plan, and often the client has difficulty dealing with those aspects. 

Special Needs Planning: Knowledge is Power

As parents, we worry about our children: a truism that becomes even more true, and often extends to siblings, grandparents, aunts and uncles, when a child has special needs. We worry about what will happen to the special-needs individual, how they will care for themself and be cared for, and how we should plan for their future and leave them funds for their support and care, or just for a rainy day, without jeopardizing their independence or sources of government support. And when we look for information, online or from professionals, sometimes we end up not only worried, but also confused. And this can lead to paralysis and lack of planning.

Often the confusion arises from not understanding how the various available sources of assistance and planning tools apply. Ontario Disability Support Program ("ODSP") benefits, Henson trusts, disability tax credits, qualified disability trusts--these things can be difficult to understand, and more difficult to fit together in an understandable whole. And it is important to understand how they fit together, so that a family can coordinate planning for a special-needs individual, since a lack of coordinated planning can have unintended and negative consequences for them. 

We are a top-ranked and peer recognized firm, including Margaret O’Sullivan by Chambers Canada Guide 2017 and Chambers Canada High Net Worth 2016 as one of the top six private client lawyers in Canada:

  • Top Ranked Canada Chambers 2017 Margaret O'Sullivan
  • Margaret R. O'sullivan 2016 | Listed in Best Lawyers CANADA
  • Canadian Legal Lexpert Directory
  • The Law Reviews | Expert Panel 2015
  • Step | Canada | Advising Families Across Generations
  • Top Ranked HNW Chambers 2016 Margaret O'Sullivan
  • Recognised in WHO'SWHOLEGAL | WWL
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