KRMC Presentation - North York District

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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
 “[28] 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.”
 “[29] 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
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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
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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!
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