All About Estates

New Tax Rules to Hyphenate Estate Litigation – a Defacto “36 month limitation period”?

There has been a fair amount of discussion about the new rules starting January 1, 2016, and the  tax treatment of charitable gifts after the death of an individual will change significantly. What about the impact on estates that are in litigation?

Now, when a gift is made “by will” to a qualified donee  the gift is deemed to have been immediately prior to the death of the individual with any tax credits arising from the testamentary charitable donation applied to reduce taxes resulting from the deemed disposition of the individual’s assets in the year of death, or carried back to the year prior to death.

With the new rules, a charitable gift made by will, beneficiary designation or by an estate, will no longer be deemed to have been made immediately prior to death. Instead, the gift will be deemed to have been made by the estate at the time the gifted property is transferred to the charity. The estate will (with conditions) then be able to allocate those credits among, the year the gift was made by the estate, any earlier taxation year of the estate, or the last two taxation years of the deceased individual with unused tax credits being able to be carried forward for a period of five years.

The ability to allocate tax credits in this fashion however will not be automatic as the actual transfer of estate property to the charity must take place within 36 months of the individual’s death and the property received by a charity must be an asset of the estate.

The question this raises is whether these rules put the pressure on estate in litigation to settle or resolve the litigation before this time line where there is a charitable gift involved?

This “36 month limitation period” could in effect work in charities’ favour by getting the parties to deal with the litigation within this 3 year time frame, and one more tool for the litigator trying to get matters settled.

Until next time,

Jasmine

About Jasmine Sweatman