Changes to Ontario’s Probate Process & Other Tips for Advisors May 2014 L ea Koiv, B.Comm., CPA, CMA, CA, CFP, TEP National Director, Retail Tax and Estate Planning lea.koiv@standardlife.ca
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 4- year 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
Recommend
More recommend
