Being appointed executor of a loved one’s Will is an expression of the ultimate trust that person places in you. Although you may emotionally feel the need to honour the wishes of the deceased, there are some practical aspects one should take into consideration before taking any action on behalf of the estate. You may wonder whether you have the necessary skills and time to manage the deceased’s affairs. Are you legally bound to handle the estate once appointed executor in a will? This article reviews your basic responsibilities as an executor and explores avenues open to you.
When appointed as an executor, what options available to you?
You can either decline or accept to be an executor at the time you are notified of your appointment after the death of the individual. Timing and process are important if you choose not to act as executor. A renunciation should be done in the form required by your provincial estate law (a sample Ontario Form 74.11 courts of justice act is here) and submitted before carrying out any duties related to the estate. If you perform any tasks on behalf of the estate prior to renouncing, the court may reject your application to refuse your appointment as executor.
An estate executor has many estate settlement responsibilities. Those responsibilities include, but are not limited to the following:
Locating wills - In order to reassure third parties and beneficiaries, executors are often required to probate a will. Probate is the legal process through which a will is validated by the court as the last valid will, and gives legal authority to executors of the estate.
Arranging funeral – Although the funeral is usually organized by family members, the executor is legally responsible for the costs associated with funeral arrangements. The executor should negotiate funeral details with family members while focusing on funeral cost control because of his duty to protect estate value for beneficiaries’ interest.
Inventorying, managing and protecting assets – it is the responsibility of the executor to identify, locate, appraise and make a listing of all deceased’s assets and their market value as at the date of death. The executor’s duty to protect assets may involve purchasing liability and damage insurance. Also, the executor must manage estate assets prudently and reasonably until full distribution. If necessary, professional advisers can be hired to provide assistance with estate law, investment management and accounting services.
Paying debts and preparing tax return– The executor can be held personally liable for the deceased debts (including tax) and should make an effort to identify and locate creditors. Also, an executor has the obligation to file a final tax return for the deceased by the later of April 30th of the year following the year of death and 6 months after the date of death. When the deceased is self-employed the deadline is the later of June 15th of the year following the year of death and 6 months after the date of death. Business, trust and “rights or things” returns may be also reported on separate tax returns if it is advantageous to do so. As all deceased’s capital assets and other properties are deemed disposed of at fair market value immediately prior to death, except when they are transferred to the spouse or a spousal trust within 36 months after death, it may be appropriate in some circumstances that the executor elects to transfer assets to the spouse or a spousal trust at market value if permitted in the Will. This strategy will be beneficial to the estate when the deceased has capital losses carried forward from previous years, or has an unused capital gains exemption. An executor should also consider making a final contribution to an RRSP for the year of death when the deceased still has unused contribution room. Furthermore, an executor is responsible for filing annual tax returns for the estate and should also find out if there are any foreign tax issues. An experienced chartered accountant should be hired to ensure proper reporting.
Distributing assets to beneficiaries according to the will – Before any distribution, it is recommended that the executor obtains a clearance certificate from Canada Revenue Agency in order to avoid any personal liability for income tax owed by the estate due to any future adjustment in tax return. A clearance certificate will be provided when estimated taxes are paid, and any tax liability arising on a future date will be shared by beneficiaries.
Preparing an accounting of the estate – One of the executor legal responsibilities is to present an accounting of the estate to the beneficiaries. Any debts, receipts (including insurance proceeds) and disbursements should be properly recorded.
Are you inclined to accept your appointment in spite of a lack of technical competency and/or time?
Yes, there is still an option for you. You can hire a trust company, whose trust officers will perform all the actual duties for you. The only thing you will be responsible for is to retain the final decision making as you are still bound by the legal duty “not to delegate decisions” about the estate management and affairs. Note that the costs of hiring professional advisers, including a trust company, will be paid by the estate.
Are you a non-resident executor?
Some provinces require posting a bond if executor is not a Canadian or Commonwealth country resident. In case the majority of executors are not Canadian residents, the estate will be taxed as a non-resident trust and tax will be deducted at source on any income earned in Canada. Also, you have to make yourself readily available for any regulatory audit in Canada.
Being an executor of an estate is an honour and significant responsibility.We have highlighted some of the major considerations.Here is a useful checklist that covers most executor duties should the need arise.
"This information is general in nature and is not intended to constitute specific tax or legal advice for any individual. It is best to speak to your tax and legal professionals for specific advice.”
Whether incorporated or a home based sole proprietor, business owners can deduct many operating expenses from their income. Here is a list of the most common expenses and a tip for effectively keeping track of them.
Advertising – Costs associated with marketing your services may include: Pay per click online campaigns, print and radio ads, direct mail, memberships in business associations and networking groups.
Car and fuel – the proportion of automobile expenses related to business use can be deducted. Make sure to keep an auto expense usage log in the event that you are audited.
Insurance – Business liability, property, trade credit and any other business insurance.
Legal fees – Business legal advice fees typically result from incorporations, lease reviews, shareholder agreements, contract development and unfortunately at times, litigation.
Eligible maintenance and repairs - Upkeep of buildings and equipment including utilities.
Equipment and supplies - Common expenses include office supplies, telephone and cell phone services, computers and related technology and furniture.
Support staff - All staff expenses including contractors are a deductible expense. Make sure to treat employees as such rather than contractors if for all intents and purposes the individual(s) is working exclusively for you on a full time basis.
Taxes – Yes, some taxes are deductible and they include property taxes and HST.
How can getting married be an estate planning mistake? Well, in most Canadian Provinces, marriage automatically revokes a will made prior to the marriage unless the will clearly states that it was created in contemplation of marriage (to the person you ultimately marry!). So unless you have a new will drafted and signed following marriage, at your death you would be considered intestate (having died without a valid will). The estate laws of the province would then dictate the distribution of your assets. The unintended consequences could include:
Bequests to friends or charities outlined in the pre-marriage document would be ineffective.
Delays can result. For example, in Ontario, Pursuant to s. 26 of the Estates Administration Act, subject to s. 53 of the Trustee Act, no distribution is to take place from an intestacy for one year.
Trusts for children that are commonly included in wills to delay the distribution of estate proceeds beyond the age of majority (18) would be ineffective.
Even if you would be satisfied with how the provincial government dictates the distribution of your assets, the estate would bear an additional administrative burden resulting in additional legal and court fees.
Unlike marriage, separation (without any formal separation agreement or divorce) will not automatically revoke a will that likely has all or a significant portion of the estate benefitting the soon to be ex-spouse. We recommend getting legal estate planning advice immediately following a marriage breakdown.
Having an outdated will
Wills are drafted in line with your financial and relationship status at a moment in time. Flash forward a decade or two and what was a sensible will can result in unintended consequences. There are enumerable changes that would justify an update or redrafting of a will, but here are a few examples.
A large charitable bequest is named in dollar terms with the estate residue directed to family. At the time of drafting, if the person’s estate is worth $2 million and the bequest is for $500,000 that might be reasonable. Over time, if the value of the estate declines as the person uses their capital in retirement, they may pass away with an estate valued at less than the bequest. In this case, the family members would receive no benefit. Estate litigation could result. Charities are known to get involved in Estate Litigation to secure bequests, so don’t assume that they are pushovers.
Children often experience different degrees of financial success/hardship over time. A will that distributes an estate equally, may not be desirable in this scenario.
The optimal choice for a guardian for minor children may also evolve over time and should be reflected in an updated will.
The suitability of named executors can also change over time.
Ignoring tax implications
Although there is no estate tax in Canada, significant taxation can occur at death. These taxes result from the “deemed disposition” rule wherein CRA considers all of your assets “sold” on the day prior to your death. Unless you designate your spouse as beneficiary of any registered plans and other appreciated assets, taxation will result. If taxation is not considered, unintended consequences can result. We will deal with this in a future post.
Taking the time and spending the money to have a well developed estate plan is a gift that you give your survivors. Leaving an untidy estate for your mourning loved ones to deal with is easily avoidable. It is one of those tasks that falls to the bottom of the to do list, but when complete results in a sense of accomplishment and peace of mind.
This information is not to be construed as legal advice. If legal assistance is required, the service of a competent professional should be sought.
Those who have agreed to act as a Power of Attorney for property may be subject to additional reporting requirements in the future. If the proposed amendments to the Substitute Decisions Act under Bill 9 get passed, POAs for property will have additional obligations. Bill 9 received first reading in February 2013.
The legislation would require an attorney an attorney under a continuing power of attorney for property to make an annual accounting to the Public Guardian and Trustees Office (PGT) or where requested by the grantor. It is still unclear as to the nature of the reporting, but it would likely include the grantor’s assets, liabilities and the amount of compensation taken by the attorney.
The legislation also proposes to establish a formal registry of attorneys for both property and personal care.
It will be interesting to see how onerous the reporting obligations are and whether there will be a surge in attorneys no longer wishing to take on the role. Unless the changes are communicated directly to those named as POAs, I don’t anticipate any mass exodus. Should the additional reporting become more broadly understood, some POAs may ask the grantor to find an alternate.
Those who are unable to find someone willing to be their primary or alternate Power of Attorney for property will rely on the services of the PGT. The PGT could find itself strained under the growing demand and would need to increase staff (which would require more tax dollars). Should the dollars not be available, service would eventually be compromised.
Stay tuned here for updates as they become available.
This information is not to be construed as legal advice. If legal assistance is required, the service of a competent professional should be sought. Feel free to refer to Our Network page for recommended professionals.
You’ve heard of High Frequency Trading (HFT) but have you seen it?
The 2010 flash crash has been blamed on HFT. For those of you who forget the details, the term “flash crash” was coined when the U.S. stock market lost 1000 points in a matter of minutes before recovering most of these losses a few minutes later. The crash was triggered by HFT algorithms initiating a selling cycle that wiped out billions of dollars of value before anyone knew what was going on. The trades were processed by computers, rather than human beings making buy and sell decisions based on fundamental valuation measures.
Market data research firm Nanex created this amazing video that illustrates a ½ second of trading activity in Johnson & Johnson (symbol JNJ) on May 2, 2013.
I asked Keith Graham, veteran portfolio manager with Rondeau Capital and manager of the NexGen Turtle Canadian Equity fund if investors should be concerned.
“I view it as legalized “front running” and it should be stopped. I think it creates enormous volatility and is bad for the capital markets overall. It is another issue that is causing the public to lose faith in capitalism etc. and this is very bad for our economy (and our society I think) in the long term.”
Regulators around the world are trying to figure out whether and how much they should regulate HFT. That is an emerging story. Stay tuned.
"This information is general in nature and is not intended to constitute specific investment advice for any individual.”
The AODA’s deadline for providers of goods and services with 20 or more employees to file a Customer Service Accessibility Compliance Report was December 31, 2012.
AODA stands for the Accessibility for Ontarians with Disabilities Act. Many business owners are unaware of the law that requires the filing of a compliance report. They are also unaware of the onerous penalty for non-compliance.
Employment lawyer, Doug MacLeod tells the story of a client of his that received a non-compliance letter from the Ontario government. Her organization was given 15 business days to comply with AODA. Thereafter, the organization would be subject to a fine of $50,000 for each day the organization did not comply with AODA.
“The government has provided fairly user friendly tools to assist employers fulfill their obligations under the act” MacLeod says. There is a detailed package that provides directions on compliance reporting. MacLeod suggests not waiting until you receive a letter from the government to develop an accessibility policy and file the compliance report. “It appears that employers are being given very short deadlines for compliance. It is prudent to file the report now, even though the deadline has passed.”
Businesses with fewer than 20 employees don’t need to file the compliance report, but they are still have obligations under the Customer Standard of AODA. Such obligations include: establishing policies, practices and procedures on providing goods or services to people with disabilities; providing people with disabilities with notice of a temporary disruption in facilities or services; and providing training to certain persons about the provision of its goods or services to persons with disabilities.
The Ontario government provides a range of online resources to help business owners fulfill their obligations under the Act.
• For every provider of goods and services (except sole proprietors) there is a an accessible customer service policy template.
• For every provider of goods and services (except sole proprietors) there is a 45-minute online training course for employees.
• For every provider of goods and services with 20 or more employees there are directions on compliance reporting.
These resources, along with advice from your employment lawyer, are all that you need to become compliant with the Accessibility for Ontarians with Disabilities Act.
This summary is intended to highlight the aspects of the budget that will affect some or all of our business owner clients. It is not meant to be a comprehensive outline and analysis of the budget.
Corporate income tax rates
There were no changes porposed to any corporate income tax rates.
Hiring credit for small business
The temporary hiring credit for small business will be extended for another year. The credit will be available to employers whose EI premiums were $15,000 or less in 2012.
Scientific research and experimental development tax credit (SR&ED)
More detailed information will be required when taxpayers use third parties to prepare a claim. Business numbers for each third party along with details about billing arrangements including the existence of contingency fees and the amount of fees payable, will be required. The claimant will have to certify if there was no third-party involvement in preparing the claim. There will be a new $1,000 penalty for all claims where the required information is missing.
Leveraged insured annuities
Leveraged insured annuities use a combination of borrowed funds, lifetime annuities and life insurance policies to create a current interest expense deduction, reduced capital gains tax payable on death, receipt of tax –free growth within the policy and an increase to the capital dividend account of the corporation. We have never been comfortable with such a strategy and now this budget has taken steps to eliminate the tax benefits that made the strategy so marketable.
10/8 arrangements use life insurance policies and borrowed funds to create an ongoing interest expense deduction, a tax deduction for a portion of the life insurance premiums paid and an increase to the capital dividend account of the corporation. This is another tax driven insurance strategy that has always made us uncomfortable, and now this budget has taken steps to eliminate the tax benefits that made the strategy so marketable.
To facilitate the windup of existing arrangements before 2014, the budget proposes to alleviate the tax consequences of withdrawing from a policy under this arrangement to repay the borrowing, if the withdrawal is made on or after March 21, 2013 and before January 1, 2014.
Various other tax measures
• Accelerated capital cost allowance provisions for clean energy generation and mining companies.
• Elimination of corporate loss trading with a new provision that restricts the deductibility of losses in cases where there has been an acquisition of control of a corporation.
• Phasing out of the additional deduction available to credit unions over a five year period.
• Extention of the accelerated capital cost allowance for manufacturing and processing machinery and equipment acquired after March 18, 2007 and before 2014.
Please let us know if you have any questions about how the budget affects you.
"This information is general in nature and is not intended to constitute specific tax advice for any individual It is best to speak to your tax professional for specific tax advice.”
This summary is intended to highlight the aspects of the budget that will affect some or all of our clients. It is not meant to be a comprehensive outline and analysis of the budget.
Personal income tax rates
There were no changes made to personal income tax rates, although tax brackets have been indexed by 2% to reflect the impact of inflation.
First-time donor’s super credit.
If you or your spouse or common-law partner have not made a charitable contribution since 2007 you are eligible to receive a one-time super tax credit for contributions up to $1,000. The donation must be made after budget day (March 21, 2013) and before 2018. The resulting benefit would be a 40% tax credit on the first $200 of donations and 54% on the next $800.
Lifetime capital Gains exemption
The budget proposes to increase the $750,000 lifetime exemption by $50,000 to $800,000. The limit will be inflation indexed for 2015 and subsequent years. This exemption is available only for dispositions of qualified small business shares, qualified farm property and qualified fishing property after 2013. If you already claimed the maximum exemption, the incremental new higher limits are available to you going forward.
Deduction for safety deposit boxes.
This deduction has been eliminated.
Dividend tax credit
The highest marginal tax rate on non-eligible dividends (typically paid to shareholders of a qualified small business) will increase from 19.58% to 21.22% after 2013.
Foreign reporting requirements
If you own specified foreign property with a cost that exceeds $100,000, you must file form T1135.
You can see the list of property that must be reported on the second page of the T1135 form.
For the majority of Canadians, property that they will have to report includes:
• Funds in foreign bank accounts
• Shares of Canadian corporations on deposit with a foreign broker; (not including U.S. IRA accounts)
• Shares of non-resident corporations held in certificate form or on deposit with a Canadian or foreign broker; (for example, US stocks like Apple, Coca Cola, etc.)
• Land and buildings located outside Canada, such as a foreign investment property; (this does not include property that is for personal use primarily)
• An interest in or a right to any specified foreign property, such as a foreign Trust
Character conversion transactions and corporate class funds
This refers to financial arrangements that attempt to convert ordinary income into capital gains, through the use of financial derivatives. Many corporate class fixed income mutual funds use such arrangements to minimize the tax burden for investors. As such, as these derivative contracts expire, the tax-efficiency of these funds will be reduced, albeit they will still hold a structural advantage as compared to mutual fund trusts and ownership of individual securities in non-registered accounts.
Taxes in dispute and charitable donation tax shelters
CRA is generally prohibited from initiating collection action in respect of assessed income taxes, penalties and interest in cases where taxpayers have formally objected to the assessment. In order to discourage participation in charitable donation tax shelters deemed offensive by CRA that lead to prolonged litigation and delayed tax collection, the budget proposes to allow CRA to collect up to 50% of the disputed amount pending ultimate determination of the tax liability. This measure will apply to 2013 and subsequent taxation years.
Testamentary trusts and graduated rate taxation
A common estate planning strategy involves the use of testamentary trusts (spousal trusts, for example) created in a deceased person’s will to hold a beneficiary’s inheritance. These trusts can be more tax efficient that receiving an outright inheritance because the trusts are subject to taxation at graduated rates and allow for the splitting of income between the trust and the beneficiaries. The Department of Finance is concerned with the increasing tax-motivated use of testamentary trusts and the impact on the tax base. The budget announced that the government will consult on possible measures to eliminate the tax benefits arising from the use of these trusts.
Please let us know if you have any questions about how the budget affects you.
"This information is general in nature and is not intended to constitute specific tax advice for any individual It is best to speak to your tax professional for specific tax advice.”
Some Canadians have been asking their tax preparer not to file their return electronically because they believe that it increases the chance of an audit.
Whether e-filing increases the odds of an audit or if that is a myth is no matter. Starting in 2013, tax preparers who file more than 10 personal or corporate income tax returns are required by CRA to file them electronically.
What is the repercussion if a taxpayer refuses to file a return electronically? None for the taxpayer. It is the professional preparer who would be exposed to potential penalty for using an incorrect filing method.
So, if you want to file your tax return the old fashioned way, you will need to file it yourself or have a friend or family member help you. The good news is, there is helpful tax return software that is inexpensive and makes it easier than ever.
If you are planning a trip to Florida anytime soon, do not pass GO, do not collect $200, but go directly to your local CAA office with $25 and passport photos.
A new Florida state law was enacted on January 1, 2013 requiring all international visitors have an international driving permit before getting behind the wheel on state roads.
The law is intended to help local police interpret foreign drivers’ licenses. That is why there is hope that eventually visitors with English-language driver’s licenses will be exempt from this law, but for now the international permit is required.
You can obtain the necessary permit application and information on the new legislation at your local Canadian Automobile Association office. CAA has done a good job of summarizing related information on their website here.
If you are already in Florida, applications can be processed by mail.
UPDATE: Canadians told not to worry. See updated details here.