This blog has been written by Rahul Sharma, Partner, Fasken Martineau DuMoulin LLP, Toronto
I seem to keep bumping into quotes that remind me that life is simple, but people are complicated. There are perhaps many ingredients to this complexity. Culture is one of them.
Last week, I presented at a conference as part of a panel on cross-cultural considerations in estate planning. The conference was outside of Canada; nevertheless, attendees from several international jurisdictions commented that the discussion on culture resonated with them or with their practice.
I was asked a question during the panel discussion: what role can culture play when it comes to inheritance. The answers are perhaps too varied or lengthy (or complicated!) for this simple blog post (or for a panel discussion, for that matter). Culture and religion can heavily influence Will and estate planning, if not dictate the planning in some cases. Individuals who approach their planning from this perspective should work with a solicitor who is, first, empathetic to and understanding of their cultural beliefs and second, familiar with the tax and other legal outcomes, including potential family law outcomes, that the beliefs may engender.
Consider culture or religious constructs that may dictate a particular distribution of property at death among certain family members or heirs, and in certain proportions. If a client would like to implement such planning, and the client is the owner of, say, Ontario private company shares with considerable accrued gains, then generally speaking, a taxable capital gain will be triggered immediately prior to death in respect of shares that are not transferred to a surviving spouse (or to a spousal trust for the benefit of such spouse), and instead to children or other heirs. This is because subsection 70(6) of the Income Tax Act (Canada) provides a tax-deferred transfer only to spouses or to qualifying spousal trusts for such spouses.
There may also be family law implications under the Family Law Act (Ontario), as death would bring the marriage to an end. Absent proper planning, including potentially planning by way of a domestic agreement between spouses, a surviving spouse may be able to disrupt planning, including by seeking an equalisation of net family property under the Family Law Act (Ontario). Clients need to understand all of this; too often, it is not the case.
Tax may be a great equaliser when it comes to estate planning and culture. What I mean by this is that rational individuals are generally programmed to want to avoid or defer costs, including the payment of taxes. But tax minimisation or deferral can only be achieved in certain ways. The more complicated a client’s assets, including by way of corporate or other structures, the more complex the tax and legal dynamic, and the more the matter needs to be carefully considered and discussed, with cultural constructs and considerations factoring into an overall analysis.
The weight that a client assigns to the cultural or religious construct or principle is up to him, her or they. My simple point is that there is planning that will flow from this determination and clients need to work with teams and advisors that can help them get it right. They can only do this by approaching the discussions with empathy, but also with a view to educate and expand the client’s understanding of the options available and the associated implications.
If you have a client who might be facing these challenges, let’s get talking, and let’s work proactively and pragmatically to find the best answers, no matter how complex the equation.