1 Part 1: Using Primary and Secondary Wills to Reduce Probate Fees, Documenting Financial Transactions Involving Trusts, and Documenting Leases Between Related Parties Presented to: North York District Chartered Accountants Association Lawrence Adelberg, Partner Kronis, Rotsztain, Margles Cappel LLP [email protected] 416-225-8750 Ext: 256 October 22, 2013 2 Topics: • Part 1 ▫ 1. Using Primary and Secondary Wills to Reduce Probate Fees ▫ 2. Documenting Financial Transactions Involving Trusts ▫ 3. Documenting Leases Between Related Parties • Part 2 ▫ 1. Streamlining Communications Between Lawyers and Accountants on Routine Corporate Matters • Part 3 ▫ 1. Client Will Issues You May Not Have Thought About 3 1. Using Primary and Secondary Wills to Reduce Probate Fees 4 What is Probate? • Application to the Ontario Superior Court • Certificate of Appointment of Estate Trustee (Formerly Letters Probate) ▫ Establishes that the personal representative (the “Executor” or “Estate Trustee”) of a deceased person has the authority to deal with the assets of the deceased person’s estate 5 Why Probate a Will? • To satisfy banks, trust companies, financial institutions, and other third parties that: ▫ the individual who says he or she is the estate trustee has been properly appointed ▫ the estate trustee has the authority to deal with the estate’s assets ▫ that the will is not subject to contest • Probate is not always necessary, but it is usually advisable 6 Probate Fees (Estate Administration Tax) • Generally paid on the value of a deceased’s estate when the deceased’s estate representative applies for a Certificate of Appointment of Estate Trustee • Calculated on the total value of the deceased's estate wherever situated that is sworn/affirmed to on the application for a Certificate of Appointment of Estate Trustee 7 Probate Fees – The Formula • s. 2(6) of the Estate Administration Tax Act, 1998: ▫ $5 for each $1,000, or part thereof, of the first $50,000 of the value of the estate; and ▫ $15 for each $1,000, or part thereof, of the value of the estate exceeding $50,000. 8 Assets Not Subject to Probate • Personal effects and household contents • Shares or debt obligations of private corporations • Proceeds of a life insurance policy payable on the death of the deceased to a designated beneficiary • Benefits payable under a “plan” (within the meaning of that term under Part III of the Succession Law Reform Act) to a designated beneficiary • Property owned by the deceased jointly with one or more other persons, where there is a right of survivorship 9 Assets Not Subject to Probate - Cont’d • Real property registered under the Land Registry System • Certain real property registered under the Land Titles System by virtue of administrative conversion, but where there has been no subsequent transfer, mortgage or other transaction • Real property situated outside Ontario 10 Strategies to Reduce Probate Fees ▫ Designate beneficiaries (other than the deceased’s estate) Registered retirement savings plan (RRSP) Registered retirement income fund (RRIF) Death benefits on life insurance policies ▫ ▫ ▫ ▫ Jointly owned assets Assets disposed of during the deceased’s lifetime Establish an inter vivos trust Establish multiple (primary and secondary) wills 11 Multiple (Primary and Secondary) Wills • Objective: ▫ Separate those assets that might require probate from those that do not • Authority: ▫ Granovsky Estate v. Ontario, 1998 CanLII 14913 “ Testators therefore have the right to organize their affairs in a way which will allow their estates to pay as few probate fees or as few taxes as legally possible.” “ The estate planning of having multiple Wills in the form of a Primary Will and a Secondary Will which take effect on death is, in my view, simply another example of how a careful testator plans to have her or his estate pay the least possible probate fees on death” 12 Multiple (Primary and Secondary) Wills - Cont’d • Advantages and disadvantages • Caveat: Granovsky only represents the current state of the common law in Ontario with respect to the use of Primary and Secondary wills to reduce probate fees 13 Better Tomorrow For Ontario Act (Budget Measures), 2011 • Amends certain sections of the Estate Administration Tax Act, 1998 • Provides significant audit and verification powers/functions to the Ontario Ministry of Finance with respect to probate fees • The amendments do not appear to invalidate the use of multiple wills in estate planning 14 2. Documenting Financial Transactions Involving Trusts 15 The Trust Audit Initiative • Canada Revenue Agency (“CRA”) recently announced a Canadawide audit initiative focusing on domestic inter vivos trusts (i.e. trusts established by an individual’s will) • The initiative stems from a 2005 Auditor General’s report which recommended that CRA give more attention to the audit of inter vivos trusts • CRA is concerned that some trusts may not be properly constituted, managed in accordance with trust laws and may not be in compliance with tax laws • The initiative is likely to continue because CRA has found that inter vivos trusts do present a significant compliance risk for the tax system 16 The Trust Audit Initiative – Cont’d • Given CRA’s increased attention to the audit of inter vivos trusts, it is now more critical than ever to properly document financial transactions involving family trusts 17 Contributions/Distributions of Trust Property • Name of the transferor/recipient • Date of the contribution/distribution • Amount or type of property 18 Dividends Paid to a Trust • Type of dividend received (eligible, ineligible or capital) • Date the dividend was declared • Amount of the dividend • Whether the declaring corporation is a private or public corporation • Whether the declaring corporation is a Canadian resident 19 Allocations of Income or Capital Gains Paid (or Made Payable) to a Beneficiary • Name of the beneficiary • Whether the beneficiary is over the age of 18 • Date and amount of the allocation • Whether the amount allocated was actually paid to the beneficiary or was still owing to the beneficiary after the trust’s year end 20 Documenting Transactions • When documenting transactions involving a trust, consideration must be paid to the “three certainties”: ▫ Certainty of intention ▫ Certainty of trust property ▫ Certainty of objects and beneficiaries 21 Types of Documentation • Resolutions of trustees • Annual resolutions of trustees • Promissory notes in favour of a beneficiary or third party • Promissory notes in favour of the trust • Receipts and acknowledgements • Directions • Authorizations 22 3. Documenting Leases Between Related Parties 23 Meaning of “Related Party” Income Tax Act • s.251 (1)… ▫ • ▫ ▫ ▫ • (a) related persons shall be deemed not to deal with each other at arm’s length… s.251 (2)…“related persons”, or persons related to each other, are (a) individuals connected by blood relationship, marriage or common-law partnership or adoption; (b) a corporation and (i) a person who controls the corporation, if it is controlled by one person, (ii) a person who is a member of a related group that controls the corporation, or (iii) any person related to a person described in subparagraph 251(2)(b)(i) or 251(2)(b)(ii); (c) any two corporations (i) if they are controlled by the same person or group of persons, (ii) if each of the corporations is controlled by one person and the person who controls one of the corporations is related to the person who controls the other corporation, (iii) if one of the corporations is controlled by one person and that person is related to any member of a related group that controls the other corporation, (iv) if one of the corporations is controlled by one person and that person is related to each member of an unrelated group that controls the other corporation, (v) if any member of a related group that controls one of the corporations is related to each member of an unrelated group that controls the other corporation, or (vi) if each member of an unrelated group that controls one of the corporations is related to at least one member of an unrelated group that controls the other corporation. s.251 (3)…corporations related through a third corporation ▫ Where two corporations are related to the same corporation within the meaning of subsection 251(2), they shall, for the purposes of subsections 251(1) and 251(2), be deemed to be related to each other. 24 Key Considerations: • Type of lease True Net Lease True Gross Lease 25 Key Considerations - Cont’d • Whole/partial building lease • Building ownership and business ownership ▫ Sale of the building or business • Specify all key terms ▫ ▫ ▫ ▫ Rent Term and renewal(s) Permitted uses Landlord and tenant obligations Improvement, repairs and maintenance Insurance ▫ Termination ▫ Default • Future marketability and capitalization rates 26 Questions? Part 2: Streamlining Communications Between Lawyers and Accountants on Routine Corporate Matters Presented to: North York District Chartered Accountants Association Alexander Shaw, Associate Kronis, Rotsztain, Margles Cappel LLP [email protected] 416-225-8750 Ext: 271 October 22, 2013 28 1. Annual Resolutions of Shareholders and Directors 29 Timing • Clients provide authorization and directions to accountants at incorporation • Annual resolutions ▫ Follow up scheduled for six months after fiscal year end • Client consent to update minute book • Accountant’s letter / our letter to accountants 30 Financial Statements • Date of financial statements 31 Dividends • Type of dividend ▫ Ineligible dividend ▫ Eligible dividend ▫ Capital dividend Resolution of directors and certified copy T2054 • Class of shares ▫ Trusts and Flow-Through • Date declared • Date paid and method of payment • Amount 32 Management Bonuses • Name of the recipient • Amount paid or accrued • Dates Waiver of the Audit Requirements • s. 148 of the Ontario Business Corporations Act • Consent of all the shareholders required 33 Changes in the Capital or Organization of the Corporation • • • • Transfer of shares Share subscriptions Share redemptions Changes in directors or officers 34 2. Form 1 – Initial Return / Notice of Change 35 Incorporation (Initial Return) 36 Registered Office & Mailing Address 37 Registered Office & Mailing Address • Registered Office ▫ s. 140 of the Ontario Business Corporations Act ▫ Articles, by-laws, unanimous shareholder agreement, minutes and resolutions, and registers • Mailing Address 38 Directors, Officers and Administrators 39 Annual Return 40 What Information do Accountants Need From Lawyers? Questions? 41 Part 3: Client Will Issues You May Not Have Thought About Presented to: North York District Chartered Accountants Association Abigail Romberg, Associate Kronis, Rotsztain, Margles Cappel LLP [email protected] 416-225-8750 Ext: 362 October 22, 2013 42 Client Will Issues You May Not Have Thought About • Introduction • Legal Disclaimer • A Quebec Will in Ontario – A Tale of Max & Ruby • Persons Who Are Married But Married – A Tale of Raquel & Jeff • Conclusion • Questions 43 Questions? 44 Thank you!