Alcoholism Alone Not Enough to Negate Testamentary Capacity


Written on November 17, 2014 – 8:54 am | by Diane Vieira

In daBalinhard, the Saskatchewan Court found that a history of alcoholism, short term memory loss and unusual behavior was not enough to sustain a will challenge.

After a forty-year marriage, the testator, John, and his wife, Shirley, separated on August 16, 2011.  Two months after their separation, John executed a new will on October 20, 2011.  In his new will, John excluded Shirley and left all his property to his two surviving brothers and his nieces and nephews from a brother who has predeceased him.  John died nine months later.

Upon discovering she was excluded from the will, Shirley challenged John’s capacity at the time his new will was executed.   Her evidence was that John was an alcoholic who had been suffering from short-term memory loss and violent behavior in the last year of his life.  This strange behavior was one of the reasons they separated.  The propounders of the will, John’s brother and his nephew, agreed that John was an alcoholic but that he did not have any mental capacity issues. In fact, he had a keen understanding of his property holdings and assets and knew exactly what he was doing when he made his new will.

Both parties filed numerous affidavits with the court in support of their respective positions.  In Saskatchewan, will challenges are heard as a two-stage process.  Stage one involves a chambers appointment to determine if there is enough evidence to move on to a trial, with stage two being the trial itself. At stage one, the court does not weigh the evidence of the two sides but rather determines if the will challenger has adduced some evidence, which if accepted at trial, would show a lack of testamentary capacity and if the propounder of the will can respond to that evidence in a way that affirms testamentary capacity.

The court found that Shirley failed to show how John’s alcoholism and short-term memory loss affected his capacity to execute a new will.  There was no evidence that John was drunk when he made his will, no evidence on how his alcoholism eroded his cognitive capacity and no evidence that a hospital stay one month after the will was executed equated to a lack of capacity to make a will.

The court held that snippets of medical notes does not provide for an overall review of John’s cognitive capacity.  Shirley failed to meet the threshold stage of providing evidence that, if accepted at trial, would negate testamentary capacity.

The court noted that Shirley only saw John once following their separation. John’s brother, friend, and the drafting solicitor observed John on key dates surrounding the execution of the will.  The drafting solicitor had a long-standing relationship with John, met with the John a number of times leading up to and following the execution of the will, and provided evidence of the level of detail John was able to provide about his assets.

Moreover, the court found that John’s will made sense as he had earlier learned that Shirley withdrew large sums of money from a joint bank account and he made arrangements to have their property valued to comply with a division of family property assets.

This case is a reminder of the importance of considering the overall medical condition of a testator when challenging capacity.   The court will likely not consider a solitary note or reference to delirium (or dementia or Alzheimers) on its own as compelling evidence to warrant a will challenge.

Thanks for reading,

Diane

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    Beneficial ownership of a principal residence for tax purposes: A question of Law and Fact


    Written on November 14, 2014 – 7:00 am | by Steven Frye

    Let’s say, your parents place legal title of their house in your name for health reasons. However, your parents continue to reside in the house and pay all the household expenses. Then your mom passes away. Your dad continues to reside in the house until sometime later at which time your dad is moved to a facility for medical reasons. The house is vacant until it is sold.

    Recently The Canada Revenue Agency (“CRA”) was asked to consider the tax consequences of this scenario and focused their response on some of the requirements needed to qualify the property as a principal residence.

    We know that if a property qualifies as a principal residence, an exemption can be claimed to reduce or eliminate any capital gain otherwise realized on the disposition of the property. CRA noted that one of the requirements for a property to qualify as a taxpayer’s principal residence for a taxation year is that it must be “owned” by the taxpayer. In common law jurisdictions, two forms of property ownership are recognized – legal (title and right to enforce ownership) and beneficial (use and benefit irrespective of title).

    The determination of whether beneficial ownership of the particular home in question remained with your parents or was transferred to you is, in the opinion of the CRA, a mixed question of law/fact that can only be determined after a complete review of all the facts and circumstances applicable to a particular situation.

    If your parents did retain beneficial ownership of the home and designate it as a principal residence, it will be necessary to satisfy the “ordinarily inhabited” requirement as defined in the Income Tax Act (“Act”). If your Dad’s stay at the facility could be regarded as being temporary with respect to a particular year, the CRA noted it is likely that the “ordinarily inhabited” requirement would be satisfied for that year. On the other hand, if your Dad was placed in the facility on a permanent basis, the “ordinarily inhabited” requirement would likely not be satisfied.

    The CRA made note that in the event that the capital gain arising from the sale of the property is not totally offset by a claim for the principal residence exemption, a form prescribed by the Act needs to be filed in the year of disposition to claim the principal residence exemption.

    As you can surmise, assistance from the pros should be sought before you do anything in this regard.

    Thanks for reading

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      Relief From Uncle Sam


      Written on November 13, 2014 – 8:31 am | by Corina Weigl

      Uncle Sam has given US taxpayers living in Canada some relief when it comes to holding interests in RRSPs or RRIFs.

      Prior to the October 7, 2014 IRS announcement, US income tax would be payable by a US citizen or resident alien on income accruing in an RRSP or RRIF, even if not distributed to the holder. Given these plans are deferral vehicles under Canadian tax rules, where tax is not payable in Canada until the income is distributed, the spectre of double tax existed. With the recent announcement, it’s possible for US taxpayers to obtain tax relief.

      If the US taxpayer filed Form 8891 with their US income tax return it was possible to avoid taxation on the accrued but undistributed income. However, this election was only available if Form 8891 was filed on time and complete; if not the taxpayer had to seek a private letter ruling from the IRS. Without a successful election, double tax was a real possibility. This was because you needed Canadian income taxes to be able to claim a foreign tax credit. Given the deferral available in Canada for income accruing in these plans, it was not usually the case that there were Canadian taxes to offset the US income taxes owing. As a result, the taxpayer was taxed in the US as the income was accruing but undistributed and then taxed again in Canada when later distributed.

      The new rule is an automatic deferral of tax that is accruing in RRSPs or RRIFs. Form 8891 no longer needs to be filed. However, the US taxpayer will need to disclose these tax vehicles on Form 8938 which is the disclosure required by US taxpayers of certain “Specified Foreign Financial Assets”.

      Corina Weigl

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