Estate Administration from a Charity Perspective


Written on July 31, 2015 – 6:47 am | by Malcolm Burrows

Not nearly enough thought or ink is dedicated to the process of estate administration by charities. They are grateful recipients of gifts by will, but they are also legal beneficiaries with administrative and fiduciary responsibilities of their own. Many charities receive a steady flow of bequests and deal with a range of gifts, executors and administrative challenges.

Jill Nelson, Associate Vice President of Estate Giving, Princess Margaret Cancer Foundation recently wrote a useful piece in the newsletter Gift Planning in Canada in July on the topic of how charities can better manage estate donations. Jill outlines the players in the estate administration process – the testator, trustee (lay or professional), lawyer and the charity beneficiary. She observes that estate trustees are often “completely unprepared.”

“They may be overcome with grief at the loss that has put them in this position. They may harbor anger or resentment towards the deceased or some of beneficiaries. They may be working full-time jobs themselves, or have other life events that interfere.” In contrast she acknowledges the professionalism and relative ease of dealing with corporate trustees, which is reassuring to hear as a trust company employee.

While it is easy as a beneficiary to blame estate trustees for delays and confusion, Jill emphasizes to her charity audience the importance of being a proactive beneficiary. Princess Margaret has tight processes that include immediate acknowledgement, file assessment and scheduled follow-up dates. Specific bequests are followed up within 6-8 months and residual bequests in 12 months. They use these processes to help make cash-flow projections for budgeting purposes.

What Jill doesn’t mention is that when a will names multiple charities the beneficiaries frequently coordinate with each other when reviewing fees, accounts and requesting distributions. Large charities with experienced estate administrators often help smaller and/or volunteer-run charities. They may share resources if a lawyer or another professional needs to be hired. Pooling knowledge and resources makes a lot of sense, and trustees are wise to treat their collective action with respect.

Jasmine Sweatman, one of the regular contributors to this blog, wrote the excellent book called Bequest Management for Charitable Organizations. While it was first published in 2003, the volume is still available online and continues to be the best one-stop source of information for Canadian charities on the topic.

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    Dutiful Son or Bad Faith Litigant?


    Written on July 30, 2015 – 8:50 am | by Diane Vieira

    In a recent Court of Appeal decision, the court looked at an attorney for property’s fiduciary obligations to preserve an incapable person’s assets.

    Joe and Pina married in 1993.  It was a second marriage for both of them and they each had adult children from their previous relationships.  At the time of their marriage, they executed a marriage contract.  In 2006, Joe was diagnosed with Alzheimer’s disease.  In 2007, Joe appointed his son, John as his attorney for property.  John was also the named estate trustee in Joe’s will.

    In 2011, Pina could no longer care for Joe alone at home and asked John for help.   John’s help included making several financial inquiries about the Pina’s management of a joint account she held with Joe.  After being unsatisfied with Pina’s explanations for missing funds, John removed $36,000 from Joe and Pina’s joint account in his capacity as attorney for property. He also began to deposit his father’s pension income into another account that Pina could not access.   In 2012, Joe would move into a long term care facility.

    By 2013, John brought an application on Joe’s behalf as his litigation guardian.  He sought banking information from Pina, the partition and sale of a Florida property that Joe and Pina owned jointly, and a share of the proceeds of rental income.  Pina brought a competing application seeking to unfreeze joint assets and interim dependant support, among other relief.  John argued that since Joe was no longer living with Pina, they had effectively separated and he was obliged to enforce the marriage contract.

    Pina was largely successful on obtaining the relief she sought.  The court did not agree that Joe and Pina had separated. Pina was able to access the frozen funds and was granted sole authority to deal with the Florida property.  She was also awarded $900.00 in monthly support from Joe.  John was ordered to personally pay costs to Pina.

    Joe died shortly after the hearing but before an endorsement was rendered.  John appealed the decision on behalf of Joe’s estate and the cost award in his personal capacity.  The appeal was allowed in part.

    The Court of Appeal retroactively reduced Pina’s support from $900.00 a month to $300.00 a month.  They made this decision based on Joe’s assets at the time and what would be awarded under the support guidelines.  They also ordered the retroactive partition and sale of the Florida property.  By the time of the appeal, the Florida property had passed to Pina by way of joint ownership.  However, noting the prejudice to Joe’s estate caused by the delay in rendering a decision on this issue, the Court of Appeal ordered the partition and sale of the property retroactive to the date of the hearing of the application.

    The remainder of the appeal was dismissed.  The personal cost award against John was upheld.  The court noted that while the judge hearing the application had characterized John’s actions as bad faith conduct and marked him as an adversarial force in the family, John did have an obligation to preserve Joe’s property as Joe faced unknown healthcare costs.  John was right to seek the partition and sale of Joe’s Florida asset. At the same time, John ignored several settlement offers made by Pina and ultimately his actions and the resulting family disharmony did not benefit his father.  As such, the cost award was not overturned.

    The court’s comments on an attorney’s duty to preserve an incapable person’s property while balancing family relationships are informative.  Additionally, the retroactive partition and sale of the deceased’s Florida property indicates that attorneys should take active steps to protect assets.

    Thanks for reading

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      DISPOSITION OF JOINT ACCOUNTS: THE LEGAL DOG WAGS THE TAX TAIL?


      Written on July 29, 2015 – 7:00 am | by Steven Frye

      In past blogs, my fellow contributors have written extensively about the legal and tax implications of joint accounts created primarily to avoid probate fees, but often leading to unintended consequences without the appropriate planning.

      Recently the Canada Revenue Agency (“CRA”) was asked to comment on the tax implications of the disposition of a joint account which confirms that unitended complications can result.

      Parent passes away. At the time of death you had a “joint investment account” held through an investment firm with your parent. You state that you were added as a joint account holder in various holdings and that these holdings were not 50/50 as to ownership.

      After your parent passes away, the investment firm transferred the account solely to your name. Your parent’s will specified that the estate was to be divided equally between you and your siblings. In order to comply with the terms of the will, the shares held in the investment account were sold with the intention that the proceeds be divided equally among the beneficiaries.

      The CRA was asked how the capital gain arising upon the sale of the shares should be reported and by whom?

      The CRA is of the view that this is not a matter of income tax legislation interpretation but rather requires a legal determination of property ownership. Income tax consequences arising from the deemed disposition of property upon the death of an individual will only occur where the deceased had legal and beneficial ownership of that property.

      If the entire property belonged to your parent and you were merely a nominee on the account with no rights of beneficial ownership, then 100 percent of the property would be deemed to be disposed of at fair market value on the date of your parent’s death. Any gain or loss from that deemed disposition would be reported on the final return of the deceased. The estate would then be deemed to have acquired this property at this fair market value. Any subsequent gain or loss realized shortly thereafter from the actual disposition of the property held by the estate would be reported by the trustee in the T3 return of the estate. Proceeds from the sale of property, along with any other property held by the estate could be distributed in accordance with the will of the deceased after the payment of debts of the estate including any taxes.

      If, however, you were a legal and beneficial owner of a portion of this property then only the portion that your parent owned would be deemed to be disposed of on the date of her death, with any gain or loss on the portion that she owned being reported on her final T1 return. Then upon subsequent actual disposition of the entire property, you would have to report on your T1 return any gain or loss on the portion of the property that you were legal and beneficial owner of. Similarly, any gain or loss realized on the portion of the property held by the estate would have to be reported on the T3 return with any taxes levied being paid by the estate.

      In summary, the ownership of the property at the date of your parent’s death must be determined before the tax consequences of any deemed or actual disposition of property can be ascertained.

      The legal dog wags the tax tail indeed.

      Thanks for reading.

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