Lea Koiv presentation 14-5-2014

Changes to Ontario’s Probate
Process & Other Tips for Advisors
May 2014
Lea Koiv, B.Comm., CPA, CMA, CA, CFP, TEP
National Director, Retail Tax and Estate Planning
lea.[email protected]
Agenda
1. Changes to probate in Ontario
2. Techniques for excluding assets from probate
3. Other items of interest
Changes to Ontario's Probate Process & Other Tips for Advisors
CHANGES TO PROBATE IN
ONTARIO
Some Background on Probate
Background:
In 1998, the Supreme Court of Canada declared that
“probate fees” levied by Ontario were not constitutional (see
Eurig case)
Ontario responded by introducing Estate Administration Tax
Act (Ontario) (EATA)
Ontario now collects a “tax” rather than a “fee”
Some legal practitioners suggest amount collected is lower
than it should be due to non-compliance (only $107 million
collected for year ending March 31, 2010*)
* March 31, 2011 - $110 million; March 31, 2012 - $124 million
Changes to Ontario's Probate Process & Other Tips for Advisors
Fee Schedule - Unchanged
Changes to Ontario's Probate Process & Other Tips for Advisors
Costs Associated with Estates
Costs associated with assets falling into an estate need to be
considered as part of the planning process
Probate fees are not the only costs!
Additional costs could include:
Legal fees
Executor’s fees
Accounting fees
Fees paid to other professionals
Costs of disposition
Changes to Ontario's Probate Process & Other Tips for Advisors
Time Lines re Estates
An executor is only empowered to deal with the assets of the
estate once he/she has been formally appointed
Depending on complexity of assets falling into the estate, a
considerable amount of time may elapse before application for
probate is even submitted
This gives rise to risk of declines in asset values since assets
cannot be disposed of if an executor is not yet in place!
Changes to Ontario's Probate Process & Other Tips for Advisors
Estate Planning Piece of Mind
Advisors can access a calculator on our web-site.
Changes to Ontario's Probate Process & Other Tips for Advisors
Changes to Probate in Ontario
Significant changes introduced in 2011 Ontario Budget:
Applications filed (some time) after 2012 will be filed with
Ministry of Revenue and will require the disclosure of new
“prescribed information” about the deceased and his/her
assets
Compliance measures are being stepped up (effective May
12, 2011 – date legislation received Royal Assent)
Changes to Ontario's Probate Process & Other Tips for Advisors
What has happened since?
Based on discussions with officials of the Ministry of
Finance we have learned the following – cont’d:
Equivalent of (income tax) “clearance certificate” is not
available
It was intended that new application be in place Jan. 1/14 release has been delayed
Changes to Ontario's Probate Process & Other Tips for Advisors
Some thoughts on the new process …
Regulations allow Minister to request information about the
deceased, and not just the estate
This suggests scope of enquiry will not be limited to assets
included in the estate as such, but will also include assets
that the deceased owned that are not administered under the
Will
Potential for considerable information to be requested
Will be Saskatchewan model be employed – certain items
not falling into the estate are disclosed!!!
Changes to Ontario's Probate Process & Other Tips for Advisors
Saskatchewan’s Existing Statement of Property
(Form 16-14 – Extract from Part II)
Changes to Ontario's Probate Process & Other Tips for Advisors
Some thoughts on the new process …
Time for providing the prescribed information about the
deceased
Will detailed information be required when application is
filed, or will there be a time-frame for providing it?
Example:
There is a dispute about whether with joint assets (JTWROS)
there is a resulting trust. Dispute takes years! When does the 4year clock start ticking?
What bearing will above dates have on time-lines for
assessments and re-assessments?
Changes to Ontario's Probate Process & Other Tips for Advisors
Some thoughts on the new process …
Value of assets
Given potential significant penalties and lack of clearance
certificate, estate representative will have to take
considerable care as it relates to valuing assets
Will Minister require formal valuations?
Care needs to taken since information may be shared with
other taxing authorities (or those providing benefits), thus
affecting items such as: a) income tax calculations, b) benefit
entitlements (ODSP, etc.), c) collection procedures
Changes to Ontario's Probate Process & Other Tips for Advisors
Some thoughts on the new process …
Summary:
With the new process, there is the potential for considerably
more time and costs to be incurred when dealing with an
estate
Techniques for ensuring estate bypass become much more
attractive
Changes to Ontario's Probate Process & Other Tips for Advisors
TECHNIQUES FOR
EXCLUDING ASSETS FROM
PROBATE
Techniques for Excluding Assets from
Probate
Techniques using insurance contracts:
Can make designations in insurance contracts:
Life insurance & critical illness
Annuities (including Term Funds)
Segregated Funds
Can use contingent policyholders
Changes to Ontario's Probate Process & Other Tips for Advisors
Techniques for Excluding Assets from
Probate
When using beneficiary designations in insurance contracts
can make use of Annuity Settlement Option* (ASO) in
appropriate circumstances, where offered by insurer:
New contracts
Existing contracts
* Referred to as the “Gradual Inheritance Concept “ by Standard Life
Changes to Ontario's Probate Process & Other Tips for Advisors
Techniques for Excluding Assets from
Probate
Situations in which ASO might be appropriate:
Beneficiaries who cannot manage asset
Other special circumstances:
Adult children
Minor children
Can specify which of the beneficiaries receive lump-sum
payout and which receive annuity
Changes to Ontario's Probate Process & Other Tips for Advisors
ASO Application
Changes to Ontario's Probate Process & Other Tips for Advisors
Annuities
There is considerable scope in selecting the appropriate
annuity:
Life annuities
Term certain annuities
Wide range of features to ensure that annuity is appropriate for
selected beneficiary, including:
Installment cash refund option
Life cash refund option
Annuities can be “custom” annuities
Changes to Ontario's Probate Process & Other Tips for Advisors
ASO and Taxes
Some tax considerations:
Policyholder (of annuity contract) will receive tax slip
“Income attribution” does not apply to bequests
 ASOs may in some instances have competed with testamentary
trusts
Appeal of testamentary trusts that are tax motivated will
diminish when tax changes first proposed in 2013 Federal
Budget (and contained in 2014 Federal Budget) are
proceeded with
Changes to Ontario's Probate Process & Other Tips for Advisors
Techniques for Excluding Assets from
Probate
Other techniques include:
Joint Tenant with Rights of Survivorship (JTWROS) (joint
tenancy)*
Trust
Alter ego and joint partner trusts
Other appropriately structured trusts, including insurance
trusts
Designations made in plans/arrangements as contemplated
by the Succession Law Reform Act (Ontario)
RPPs, RRSPs, RRIFs, TFSAs, etc.
*Not applicable in Quebec
Changes to Ontario's Probate Process & Other Tips for Advisors
Joint Tenancy
Care should be taken when transferring assets to joint tenancy
Careful planning is key so as to avoid exposing assets to
costly legal disputes among family members and
inappropriate estate distribution
Need to consider implications of 2007 Supreme Court of
Canada cases (Pecore v Pecore and Saylor v Madsen
Estate)
 Cases examined presumption of resulting trust and presumption of
advancement
 Documentation evidencing intention is key and legal advice should
be sought
Changes to Ontario's Probate Process & Other Tips for Advisors
Joint Tenancy
Other considerations with transfers to joint tenancy
Possible Income tax implications
Disposition for tax purposes
Application of attribution rules
Loss of control over asset
Cannot take back asset
Cannot sell asset
Exposing assets to creditors
Changes to Ontario's Probate Process & Other Tips for Advisors
Joint Tenancy
Other considerations with transfers to joint tenancy – cont’d
Inappropriate estate distribution
Inability to have property become asset of a testamentary
trust
Inappropriate portfolio risks
Possible impact of other statutes
Changes to Ontario's Probate Process & Other Tips for Advisors
Joint tenancy – a reference piece
Changes to Ontario's Probate Process & Other Tips for Advisors
Techniques for Excluding Assets from
Probate
A few more caveats:
Risks associated with Power of Attorney (POA) completing
application
Designations being superseded
An appropriate designation in a will can supersede an
earlier designation made in a contract – Remember that
the latest designation counts!
Changes to Ontario's Probate Process & Other Tips for Advisors
Proposed Legislation in Ontario
Bill C-9 – An Act to Amend the Substitute Decisions Act, 1992
with respect to Powers of Attorney
Intention of proposed legislation is to increase accountability
Grantor may send POA to Public Guardian and Trustee
(PGT) so it is put on a register
Annual accounting will need to be provided to PGT
Grantor may identify other parties who, for a fee, may
access annual accounting
Legislation had received First Reading – New government will
have to retable this legislation
Changes to Ontario's Probate Process & Other Tips for Advisors
OTHER ITEMS OF INTEREST
US “Entry/Exit Initiative”
Final phase of this initiative will be in place July 1, 2014
This initiative is meant to allow the US to count the days
someone is in the US and Canada
Implications for:
Income Taxes, and
“Immigration”
Rules for counting days are different!
For personal travel history, can refer to:

https://i94.cbp.dhs.gov/I94/request.html
Changes to Ontario's Probate Process & Other Tips for Advisors
Tax Rates for Seniors
Changes to Ontario's Probate Process & Other Tips for Advisors
Pension Splitting – “How to Win …”
Changes to Ontario's Probate Process & Other Tips for Advisors
Pension Splitting
 Remember: Rules for what qualifies as “eligible pension
income” are different for taxpayers who are age 65 and those
that are younger!
 Savings can be realized with Pension Splitting where:
 Up to 50% of the eligible pension income is allocated to a
spouse (or common-law partner) in a lower tax bracket
 Allocation results in elimination or reduction in clawback of:
 Old Age Security & Age Credit
 Pension Credit is available to taxpayer, and perhaps
doubled where spouse or common-law partner is
provided access
Changes to Ontario's Probate Process & Other Tips for Advisors
Rules Allowing for Deferral of OAS
Effective July 1, 2013 a person attaining age 65 can choose to
defer start date of OAS by up to 60 months
Each month of deferral results in an enhancement of 0.6% per
month
Will benefit those who have OAS clawed back or those enjoying
longevity
Changes to Ontario's Probate Process & Other Tips for Advisors
Graduated Rate Taxation of Trusts &
Estates
Measure was first announced in the 2013 Federal Budget,
with Department of Finance issuing a consultation paper in
June 2013
As indicated in the 2014 Federal Budget, top-rate taxation will
be implemented for:
1. Grandfathered inter vivos trusts
2. Certain estates
3. Testamentary trusts
Certain exceptions apply
Changes to Ontario's Probate Process & Other Tips for Advisors
Graduated Rate Taxation of Trusts &
Estates
Wills:
 Where a formal trust is not be established under a Will, the
estate created under the Will be taxed in the same manner as
a testamentary trust
Department of Finance was concerned that there were
significant delays in estates being wound up, ie., beyond the
36-month period it suggests is generally required for
administering an estate
Changes to Ontario's Probate Process & Other Tips for Advisors
Graduated Rate Taxation of Trusts &
Estates
Wills – cont’d:
Changes generally apply after 2015
For existing estates falling into the 36-month exception where
the 36-month period ends after 2015, such estates will have a
deemed year-end on the day on which the 36-month period
ends, and will then be deemed to have a December 31st yearend
Changes to Ontario's Probate Process & Other Tips for Advisors
Graduated Rate Taxation of Trusts &
Estates
Will - Existing estate:
Assume: Date of death June 8, 2013
Application of new rules:
 36-month period ends June 7, 2016
 Estate has a deemed year-end of June 7, 2016, and tax is
paid at graduated rates until that time
 Next year-end will be December 31, 2016, and estate will pay
tax at top rates for the partial year as well as subsequent
taxation years
Changes to Ontario's Probate Process & Other Tips for Advisors
Graduated Rate Taxation of Trusts &
Estates
Wills - Death after 2015:
Assume: Date of death May 21, 2016
Application of new rules:
 36-month period ends May 20, 2019
 Estate has a deemed year-end of May 20, 2019, and tax is
paid at graduated rates until that time
 Next year-end will be December 31, 2019, and estate will pay
tax at top rates for the partial year as well as subsequent
taxation years
Changes to Ontario's Probate Process & Other Tips for Advisors
Graduated Rate Taxation of Trusts &
Estates
Testamentary Trusts & Grandfathered Inter-Vivos Trusts:
Department of Finance was concerned that beneficiaries were
accessing more than one set of graduated rates
Tax planning techniques included use of multiple testamentary
trusts, etc.
Effective Jan. 1/16, these trusts (except those for certain
disabled individuals) will pay top tax
Changes to Ontario's Probate Process & Other Tips for Advisors
Graduated Rate Taxation of Trusts &
Estates
Testamentary Trusts & Grandfathered Inter-Vivos Trusts –
cont’d:
Existing testamentary trusts will have a deemed year-end on
Dec. 31, 2015
Taxes will be paid at top rates thereafter
Other changes will also come into effect (no longer
exempt from making instalments and elimination of
certain other tax benefits)
Rules have yet to be released with respect to exception for
trusts for disabled individuals
Changes to Ontario's Probate Process & Other Tips for Advisors
Testamentary Trusts & Dept of Finance
Consultation Paper
Measures proposed include – cont’d:
Affected trusts and estates will generally be subject to
same treatment as ordinary inter vivos trusts
Tax installments will be required
$40,000 exemption for Alternative Minimum Tax will be
eliminated
Taxation year will have to be calendar year
Changes to Ontario's Probate Process & Other Tips for Advisors
FSCO Changes to Financial Hardship
Unlocking
 Effective Jan. 1/14 applications are to be made to financial
institution, not FSCO
 Applications have been introduced for 4 categories:
 FHU 1 – Medical Expenses
 FHU 2 – Arrears of Rent or Mortgage Payments
 FHU 3 – First and Last Months’ Rent
 FHU 4 – Low Expected Income
Changes to Ontario's Probate Process & Other Tips for Advisors
(Ontario) LIF Maximums
Changes to Ontario's Probate Process & Other Tips for Advisors
(Ontario) LIF Maximum
Assume:
Age of planholder on Jan. 1/14:
Plan assets as at Jan. 1/14:
Maximum % per FSCO:
2013 Investment income of LIF:
68
$300,000
7.83449
$50,000
Maximum for 2014:
Greater of:
1. $300,000 x 7.83449%, or $23,503
2. $50,000
Changes to Ontario's Probate Process & Other Tips for Advisors
Prescribed Annuities
 As part of review of changes to “exempt policies”, Finance also
looked at taxation of prescribed annuities
 Two significant changes here for annuities issued after 2015*:
 Updated life expectancy table will apply
 Will impact tax efficiency
 Will be able to use rated ages for substandard contracts
* Day may change. Grandfathering will apply to certain contracts issued prior to
this date.
Changes to Ontario's Probate Process & Other Tips for Advisors
The world of tax is ever-changing. As
advisors, we need to stay informed to best
advise our clients.
Thank you!
Changes to Ontario's Probate Process & Other Tips for Advisors
Standard Life
Standard Life plc is a leading provider of long-term savings and
investments. Headquartered in Edinburgh, Scotland, the company has
around six million customers worldwide and operates in the United
Kingdom, Canada, Europe, Asia and the Middle East, and globally with
Standard Life Investments Ltd.
In Canada, Standard Life has been doing business for over 180 years.
Standard Life Financial Inc., which wholly owns The Standard Life
Assurance Company of Canada and Standard Life Mutual Funds Ltd., is
Standard Life plc's largest operation outside the UK. With about 2,000
employees, it provides long-term savings, investment and insurance
solutions to more than 1.4 million Canadians, including group retirement
and insurance plan members.
As of March 31, 2014, Standard Life plc had $456 billion in assets under
administration, including $50 billion in Canada through Standard Life
Financial.
Changes to Ontario's Probate Process & Other Tips for Advisors