lea.koiv@standardlife.ca Agenda 1. Changes to probate in Ontario - - PowerPoint PPT Presentation

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.koiv@standardlife.ca

Changes to Ontario's Probate Process & Other Tips for Advisors

Agenda

• 1. Changes to probate in Ontario
• 2. Techniques for excluding assets from probate
• 3. Other items of interest

CHANGES TO PROBATE IN ONTARIO

Changes to Ontario's Probate Process & Other Tips for Advisors

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

Fee Schedule - Unchanged

Changes to Ontario's Probate Process & Other Tips for Advisors

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

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 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
• ther 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

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 claw-

back 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 year- end

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: 68 Plan assets as at Jan. 1/14: $300,000 Maximum % per FSCO: 7.83449 2013 Investment income of LIF: $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