Did you hear the one about the waiter?


Written on March 26, 2015 – 5:11 am | by Elaine Blades

A recent Maclean’s magazine cover story by Charlie Gillis – The Waiting Game - paints a rather sad view of the pending “great wealth transfer”.  The sensationalistic cover line “Hurry Up and Die, Already” provides a less-than-subtle clue about the article’s  theme.  With a number of juicy quotes from GTA estates lawyers Les Kotzer and Megan Connolly the article paints a picture of the free-spending, debt-ridden Baby Boomers waiting for their hard-working, thrifty parents to die, so the latter can get at the money they so desperately need and, in their view, deserve.

Sensationalism aside, the article contains some very interesting information.  For example, according to various surveys:

  • as much as $1 trillion is in motion
  • nearly half of Boomers are expecting to benefit from this transfer
  • on average, Canadians overestimate how much they’ll inherit by about 50%

The plot thickens as we learn that Boomers are a highly-indebted cohort.  One-half of homeowners in their 50’s still having mortgage debt which is unlikely to be paid off before they retire.  And, non-mortgage debt for 56-65 year olds has risen more than 40% since 2008.  Throw in ingredients such as an increase in second, third and non-traditional families, longer living seniors with increasing health care costs and the constant of sibling rivalry and the stage is set for some tumultuous times.

Although the article is very one-sided – there is nary a mention of the Boomers, well-off or not, who are contributing to their parents well being by providing care and/or financial assistance –  there is no doubt all of us who work in the “estates business” are in for some interesting times. (If you are craving a little balance in this regard I commend you to Audrey Miller’s posts and to the site Caregiving Matters).

On a somewhat related note, you might be interested in reading about the rise of the “Death Doula”.

Thanks for reading.

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    An Unregistered Transfer of Property Can Be Valid


    Written on March 25, 2015 – 9:03 am | by Justin de Vries

    A recent decision in the Ontario Superior Court of Justice held that a deed of transfer of land can still be valid even if the deed wasn’t registered until after the transferor died.

    In the case, Sproul Estate v. Sproul, the testatrix, Ann Sproul, had purchased a house in 1989 with her husband, Leonard, together with Pennie who was the then girlfriend of their son James. The Sprouls took title on 7/13 of the property as joint tenants and Pennie took the remaining 6/13 as tenant in common. James then lived in the house with Pennie. James and Pennie married in 1993, separated in 1995 and divorced in 1996. As part of the separation, James paid Pennie for her interest in the house and Pennie’s 6/13 interest was transferred to James.

    After Leonard died, Ann was diagnosed with early to mid-stage Alzheimer’s. However, in 2002, Ann executed a survivorship application to have title to the home placed in her name alone. She also executed a deed of transfer to transfer her interest to James for the reason of “natural love and affection.”

    Both the survivorship application and transfer deed were prepared in a law office. However, there was an issue with title, and before registering the transfer, the lawyer followed up a number of times with James in hopes of clearing up the issue. James did nothing to resolve the issue and the transfer deed was never registered.

    When Ann died in 2011, her will left everything to her two children, James and Marilyn, equally. Marilyn claimed that the estate owned the 7/13 interest in the house. She brought an application pursuant to the Partition Act, RSO 1990, c P.4, to sell the house and divide the proceeds equally between her and James. She argued that the transfer deed was invalid, either because Ann was incapable when it was signed, or because it was never registered. James argued that the house was his outright, saying that he had paid the costs of the house since he first lived there. He also claimed that his parents lent him the money to purchase the house and that he paid them back.

    Justice Pattillo rejected James’ claim that he repaid his parents the money used to purchase the house. Instead, the court held that the 7/13 interest in the house was owned by the Sprouls until Leonard’s death, at which time it passed by way of survivorship to Ann. However, Justice Pattillo also rejected Marilyn’s claim that Ann was incapable, mostly on the basis of evidence from Ann’s neurologist and long-time lawyer, who witnessed her signing the documents.

    Justice Pattillo held that Ann was capable of making the gift of her 7/13 interest in the house to James. Additionally, the fact that the deed was not registered did not change the effect of the transfer. The transfer deed became effective when it was delivered to the lawyer for registration. This was in contrast to an earlier Court of Appeal decision that held that where the testator had drafted deeds of transfer to be delivered after death, they were testamentary dispositions and had to conform with the statutory requirements for wills.

    The court did not address the issue of whether an unregistered transfer deed would be subject to a resulting trust (previously discussed here). Presumably, the estate would be able to claim that because the transfer of the property was gratuitous, the property is subject to a resulting trust. The receiving party (in this case, James) would be required to show clear evidence that a gift was intended, otherwise the estate would maintain a beneficial interest. It remains to be seen whether this case ends up introducing a new method of avoiding paying probate taxes in Ontario (although considering the inherent risks, I would imagine not).

    Happy Litigating!

    Justin

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      DECEASED RRSP TRANSFER TO SPOUSE: ESTATE TAX NOT AVOIDED ON A TECHNICALITY


      Written on March 24, 2015 – 7:00 am | by Steven Frye

      A couple of years ago, a fellow blogger wrote about the tax reporting and liability technicalities surrounding the transfer of RRSP’s on death to a spouse.

      As he wrote, the general rule is that upon death, the annuitant is deemed to have received the fair market value of the assets in the plan, immediately before death. The amount is reported on a T4RSP slip issued in the name of the deceased for the year of death, and it must be reported in the deceased’s terminal year return. The deceased’s taxable amount may be reduced where RRSP assets are paid to a spouse as a “refund of premiums”. Amounts paid out as a refund of premiums will be included in the beneficiary’s income. A spouse may make a corresponding contribution to an RRSP to continue the tax deferral and produce a tax deduction to offset the income inclusion from the receipt of the refund of premiums, resulting in no tax.

      Recently, the Tax Court of Canada was asked to look at a situation where the deceased’s children were the designated beneficiaries of the RRSP and the children assigned their interest in the RRSP to the deceased spouse under a Consent Order. The estate took the position that the RRSP’s were rolled over to the spouse as a refund of premiums and that the deceased’s taxable amount may be reduced accordingly.

      The court noted that the designated beneficiaries did not disclaim their rights to the RRSP in question. The Court interpreted the Consent Order to suggest that the children assigned their interests in the RRSP. The children accepted the gift of the proceeds of the RRSP and then, after negotiation and settlement, they consented to transfer all of their interests in the RRSP to the spouse. The Court determined that this was an assignment not a disclaimer. The facts of the case, the Court concluded, did not support a “deduction” to the deceased’s taxable income for a refund of premiums to the spouse.

      In certain situations the tax liability does not automatically follow the direction of the funds. This is a case in point.

      Thanks for reading

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