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Estate Plan “Health Check-Up” – Keeping up to Date with Recent Legal and Tax Changes

In both our August 2015 and March 2016 blog posts, we discussed the importance of frequently reviewing your estate planning documents, as personal and financial circumstances can constantly change. Failing to make necessary revisions to your estate planning documents may result in unintended consequences that do not accurately reflect your wishes, intentions and goals.

We have previously suggested that completing a periodic review of your assets and liabilities is prudent to ensure no major changes have occurred. As well, reviewing asset ownership and beneficiary designations are necessary steps to ensuring consistency with an established estate plan. A fulsome review of your estate planning documents will also allow you to consider whether executor, trustee and guardian for minor children appointments still make sense in light of current relationships, location of the appointed individuals, and the ability and practicality of individuals named for each role.

Changes to family circumstances, such as a child’s divorce, the birth of a grandchild, providing financial assistance to a family member, or acquiring property outside of Ontario, to name a few, may impact an estate plan.

Not only should estate plans be frequently reviewed, legal and tax changes, both nationally and across the border, should also be front of mind, in order to prevent a situation where you are no longer compliant with current laws. For example: the types of trust structures that can be put in place, taxation changes, and amendments to estate administration legislation. There have recently been a few noteworthy changes that directly impact estate planning.

On April 1, 2018 the prescribed rate of 1% is slated to increase to 2%. A prescribed rate loan allows for income splitting among family members in lower tax brackets and is commonly used in conjunction with inter vivos family trust, where the settlor, typically the high income earner, makes a loan to the trust. The prescribed rate interest must be paid to the lender by January 30 of the following year. Families looking to set up an income-splitting family trust should consider moving forward before this looming deadline. Please see our advisory on using a trust in your estate plan for more information.

Parliament also recently enacted changes to the Income Tax Act. On January 1, 2018, new measures took effect for Canadians with private corporations who use income sprinkling for tax planning purposes among specified family members. These changes address concerns that business owners benefited from unfair tax advantages by splitting income with family members who did not contribute to their business. However, such measures have been substantially revamped since they were introduced last summer. Please see our recent blog. Canadians with private corporate holdings should ensure that their estate and tax planning complies with the new amendments.

The definition of “child” and “issue” has also changed under newly enacted Ontario legislation, All Families Are Equal Act (Parentage and Related Registrations Statute Law Amendments), 2016, which includes a broader definition for who is considered to be a “child”, specifically both biological and adopted children, as well as children not yet born at date of death, in an attempt to reflect modern day parentage. When reviewing your estate planning, you may wish to take these changes into consideration and whether further planning is required. Please review our recent blog that discusses these expanded definitions in more detail.

As noted in our recent blog on U.S. tax reform, our U.S. neighbours, in December 2017, underwent one of the most significant tax reforms in the country’s history. This reform resulted in, among other things, an increase in the estate tax exemption upon death. U.S. persons now have an exemption of approximately $11.2 million USD, indexed for inflation, and $22.4 million for a married U.S. couple. This allows for those with U.S. connections to revise their estate planning accordingly, in some cases simplifying what used to be a complex structure. However, these exemptions are not permanent.

It is important that personal, family, legal and tax changes are considered on a regular basis, as your estate plan is only useful if it is up-to-date. If your circumstances have changed, or if you think recent legislation or tax changes may affect your estate plan, we recommend seeking professional advice to ensure your estate planning documents are modified accordingly.

Wishing everyone a Happy Valentine’s Day ♥

The comments offered in this article are meant to be general in nature, are limited to the law of Ontario, Canada, and are not intended to provide legal or tax advice on any individual situation. In particular, they are not intended to provide U.S. legal or tax advice. Before taking any action involving your individual situation, you should seek legal advice to ensure it is appropriate to your personal circumstances.