There are various Tax minefields that I continuously come across in the course of my practice as an Estate Litigation Lawyer, a lawyer who sues other lawyers for tax errors that cause losses and as an Estate Trustee/Guardian/ Attorney for Property.
I am far from being a Tax expert and specifically advise my clients that I am not a tax expert, but after several thousand litigation files and after acting as an Estate trustee for numerous estates, I would like to at least provide you with some issues to watch out for.
Estate Administration Tax
- Be accurate. Get your client to provide you with receipts. You are swearing or affirming an affidavit.
- From January 1, 2015, under the Estate Administration Tax Act, an Estate information Return must be filed within 90 day after a Certificate of Estate Trustee has been issued, by the Estate Trustee.
- The limitation period for the Province to come back against the Estate trustee can be as long as 4 years.
- It is absolutely incumbent upon the Estate Trustee, and his advisor, to make sure that the return is accurate and that there is proper back up.
- Primary and Secondary Wills – Are they necessary or appropriate
Federal Mine Fields
- Monies taken by an Estate Trustee are considered to be taxable income.
- If you are a professional, you may have to pay H.S.T. on the Compensation paid to you, so make sure that you get it from the Estate.
- On death there is a deemed disposition so that the amount of the Plan has to be included in the income of the Deceased in his terminal return.
- There are rollovers for spouses and spousal trusts that eliminate the tax, but there is a time limit for doing so that can’t be missed.
- If the will does not specifically contain a proviso that the Designated Beneficiary also has to pay the tax, the Designated Beneficiary may get the monies and the Estate has to pay the tax.
Principal Residence Exemptions
- Farms and Farmhouses are treated differently than non rural residences. Only a small portion of a farm where the house is may be a principal residence.
- There are rollovers for family farms.
- Do you lose part of the exemption if the home is in joint tenancy?
- In our crazy real estate market a one year time period between death and disposal of the home could result in a 28% increase in the price of the home, exposing the Estate to a substantial capital Gain.
Unintentional Drafting Errors
- The misuse of Precedents probably put my son through Law School. It is not enough to assume that because Charley from Big Firm LLP used it that the clause or clauses are appropriate to your client. I was involved in a case where the improper use of a particular clause of the Income Tax Act caused an assessment that was tens of millions higher than it should have been.
Foreign Assets and Income
- As the world becomes smaller, this becomes a larger and larger problem. Residents of Canada are for the most part liable for their income world- wide. What happens to the condo in Florida, or the Castle in Czechoslovakia, and to the years of unreported income from a business that operated in the Caribbean?
- Remember that your client, or possible you, may be personally liable.
- What about tax treaties etc. Do you need foreign counsel?
- There are deadlines for filing terminal year returns and for filing Trust returns (the Estate). Judges and beneficiaries take a dim view of unnecessary penalties.
- Voluntary disclosures and fairness requests should be made before CRA makes inquiries of you, and if you are late, you could expose yourself or your client to a very large lawsuit.
- Family and other trusts usually have a deemed disposition of Assets after 21 years, which could cause huge stress to clients, to you, and to your insurer.
- EVEN SIMPLE WILLS WHERE TAX ISSUES ARE NOT CONSIDERED CAN CAUSE HUGE HEART ACHE. FIND A FRIENDLY CPA AND USE HIM.
- DON’T USE A CLIENT AS GUINEA PIG. DRAFTING LAWYERS CAN BE SUED BY DISAPPOINTED BENEFICIARIES.
For questions about tax issues in estate matters, or for advice and guidance on other Estate Litigation issues, contact the estate litigation lawyers at Eisen Law in Toronto to find out how we can help. Call us at 416-591-9997 or contact us online.